5 tips for direct mail marketing

Direct mail can be an incredibly powerful marketing tool. It can also be a black hole into which you pour money without a return on your investment. Below are five tips to help you ensure that you remain on the right side of the ledger.

1. Identify your mailing list.

If you’re going to mail, an obvious factor is your list of names and addresses. There are many sources here. If you’re offering a credit product, the credit bureaus are an excellent source of names. However, there are rules about the types of offers you can make, and the penalties for non-compliance can be severe. So, know and follow the rules. Beyond that, you’ll find literally hundreds of vertical lists that you can purchase.

2. Test and learn.

Direct mail should be a never-ending cycle of testing and learning. Dimensions you’ll want to test include:

• Market segments. Blindly mailing a list of names will not likely be fruitful. Instead, identify segments of the list you expect to perform better than others, based on the specific offer you are making. When you buy a list, it may lack the data you need to ensure effective segmentation. There are services, such as Epsilon, that allow you to append additional information to the lists you purchase to enable segmentation. For example, you may have names and address, but still want to add income or net worth to improve targeting.

• Offers. Test multiple offers, all substantively different. For example, if you reduce your price by 10 percent, does volume increase enough to cover the lost margin? Remember: One offer may be more profitable with a particular segment, while another may win in a different segment.

• Creatives. Does a “stealth” envelope (whose contents aren’t discernible) deliver better results than one that highlights the offer on the outside? Continuously test your current champion against new challengers. Even champions’ performance will degrade over time. Ultimately, you need a group of proven winners that you can rotate in and out, testing new challengers at each step.

• Cadence. How often do you plan to mail? Since you are driving response to a call center, you’ll want to create a relatively smooth volume of calls. Response models can be built that will allow you to predict call volumes based on a particular mail-drop strategy. You’ll want to test re-mail strategies. How long should you wait after you have mailed a non-responder to mail recipients again?

While testing, choose your sample size carefully. Testing a very large sample can be expensive. After all, the fact that you are testing means that performance is unproven. On the other hand, if your sample size is too small, results may not be statistically meaningful. You’ll need to strike a balance.

3. Analyze your results.

If you are going to learn from your testing, you’ll need to analyze the results carefully. Make sure you understand the full economics of your testing. It is great to have a high gross-response rate, but you’ll need to understand your close rate and the amount of money you make from each closed sale. Consider all of your costs, not just your mail costs. We suggest building a profitability model to ensure that your direct mail program is profitable when all costs are considered.

4. Roll it out.

Once you have identified which segments are clearly profitable, you’ll want to roll them out with the maximum volume you can handle operationally. This is why you need to be sure that you fully understand the economics. You may go from dropping 15,000 pieces of mail in a test cell to rolling out with 1.5 million pieces. If you thought you were going to make 10 cents per piece mailed, but instead lose 10 cents per piece mailed, the results may be devastating.

5. Work with an expert.

Pitfalls surround direct mail. We strongly advise you not to go it alone. Work with someone who knows what to do and not do. The money you spend on good advice will be worth every penny. Once you learn the ropes, you may find that there are pieces of the process you will want to take over. There will also likely be parts of the process you will continue to outsource.

In the right industry, a well-managed direct-mail program can be very profitable. Unfortunately, a mismanaged rollout can bankrupt your company. The tips above will help you have a successful campaign.

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by DOUG AND POLLY WHITE