Using the Direct Mail ROI Calculator

Direct Mail has been one of the most impactful modes of offline marketing in the last decade. Marketers extensively use it to directly reach out to people and induce them to buy their products or services. Direct mail ROI is greatly dependent on the mailing lists’ quality, the relevance of the direct mail to the audience, and the offers given.

Targeted and demographic mailing lists are an excellent way to segment people according to their preferences smartly. It helps connect with people through offerings that they are likely to purchase. When conducted in the right manner, direct mail works effectively.

The success of a direct mail campaign must be analyzed and measured. It helps determine the scope of the campaign and enables planning to make it better. ROI is expressed in terms of a ratio between a campaign’s budget and the gross profit generated by it. The direct mail ROI calculator is a tool designed to calculate the returns on an investment given by direct mailing. See your return on investment potential with our Direct Mail Automation Software and Direct Mail API Platform

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How to Calculate Direct Mail ROI?

Direct mail ROI is very easy to calculate by tracking the responses and the sales made through them. The direct mail ROI calculator makes it very simple to compute and analyze your campaign results in financial terms. It allows you to enter the variables regarding the direct mail advertising campaign and calculates the ROI for you.

Response rates and ROI are the prime factors deciding the performance of direct mailings. Hence, a company should keep records before and after conducting any campaign in the market. The expected returns are presented for the marketers to decide whether to change the campaign’s variables or to continue with them.

At first, the idea of calculating direct mail ROI can seem to be tricky and complicated; but it is actually a swift and easy process. The direct mail ROI calculator breaks down the numbers and calculates a percentage of the campaign’s net profit after subtracting the cost. It gives a better and more precise understanding of the working of direct mail solutions and their objectives.

For costs of direct mail, you can check out our Direct Mail Cost Calculator.

How to Use the Direct Mail ROI Calculator?

The direct mail ROI calculator has some fields to be filled up. It is designed in a way that you can enter the figures according to your estimates for measuring the ROI. This flexibility allows you to enter different numbers to get different results and analyze your possibilities.

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The inputs required to be fed in the direct mail ROI calculator are

Size of the campaign

Your marketing campaigns’ size will directly depend on the budget available or the number of addresses in your mailing list. It dictates whether you are performing the campaign on a small scale using a targeted mailing list or conducting a huge campaign across your city or country. Let’s take an example that the number of your direct mail is 5,000.

The budget of the campaign

The budget consists of everything from the basic concept planning, designing, printing, packing, and storing to postal rates. The elements adding up to the cost also include paper, envelopes, ink, coating, printer charges, staff fees, and much more. These things are essential to be listed for knowing the direct mail marketing campaign’s total budget and size.

The type of marketing collateral, mailing list, and delivery option chosen are also taken into account. For reducing the budget, paper, coating, packing, and mailing alternatives can be revised. The direct mail ROI calculator will give you an idea of whether you need to change the budget. In our example, let’s fix the budget at $3,000.

Response Rates

The response rates from direct mail campaigns vary from one campaign to another. The design, idea, message, offers, and timing of the direct mail affect the engagement levels. The response ratios can be tracked and calculated through unique pURLs (Personalized URLs), contact numbers, or coupon codes. The number of people who respond to the call to action in the mail sum up the total number of responses.

The response ratio is the percentage of responses from the total number of direct mailings sent out. Targeted marketing assures more responses as compared to general marketing. Our estimated response ratio is 2%.

Conversion ratio

Not all responses are converted into actual purchases. The conversion ratio is basically the sales ratio derived from the number of prospects to customer conversions. The final offers are given to the potential customers and the timely follow-ups are responsible for these conversions. This ratio is also an important variable input needed for using the direct mail ROI calculator. If you have used exceptional offers and eye-catching graphics, the conversion ratio is likely to be higher. Let us estimate the conversion ratio to be 10%

Revenue generated per piece

This is the amount of revenue collected through every purchase made by the responders of the campaign. The price that a buyer has paid for the company’s product or service is the revenue generated per piece. Let’s assume $1000 be the average revenue generated per piece in our example.

Profit margin per piece

The amount of revenue that the company receives after deducting the cost of production is the profit. The net profit per piece is the profit earned on every product or service by the company. Profit margins differ from company to company, depending on the prices they have fixed and the costing they have incurred. In our example of direct mailing, the profit ratio is 40% on every item sold.

Enter these inputs into the direct mail ROI calculator and wait for the results. All the percentages will be converted into proper numbers and a final percentage will be displayed as the direct mail ROI.

The analysis of the results generated by the direct mail ROI calculator

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  • The number of direct mailings and the campaign’s budget: It remains the same as it is already in proper figures which are 5,000 and $3,000 respectively. Please refer to the direct mail ROI calculator above.
  • The number of responses: 100. This indicates that 100 people out of 5,000 responded to your direct mail. These responses are tracked through the contact options set up by you especially for the campaign.
  • The number of conversions: 10. This indicates that 10 people out of the 100 responders were successfully converted into buyers. Your revenue depends on these conversions.
  • Revenue generated per piece: $1,000. This is the price every buyer paid to purchase your product or service.
  • Profit generated per piece: $400. This is the net profit made by the company on each sale.
  • The total revenue earned from the campaign: The net profit per piece multiplied by the number of conversions gives the total revenue earned by a particular marketing campaign. This figure is the overall gross profit and is very crucial as it completely decides the performance of your direct mail. In our example, the total revenue generated is $4,000.
  • ROI: The net profit or the returns on investment is the amount obtained after deducting the initial cost of the campaign from the gross profit. In this example, it is $1,000. When expressed as a percentage, it is 33.33%, which accounts for a positive ROI.
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Break-Even, Positive and Negative ROI

A direct mail campaign is productive only when the direct mail ROI is positive. However, it is also good enough when the ROI breaks even as it would give results in the longer run. Negative ROI, on the other hand, states that the purpose of the campaign is not fulfilled.

Break-Even ROI

Mostly, the break-even point of the direct mail ROI is pre-set by the marketers. This is the point where the ROI is at least enough to cover the cost of the campaign and the company doesn’t run into losses. The focus is on converting a minimum number of respondents into buyers for covering the entire campaign’s costing. If the break-even ROI ratio is too high, the campaign needs to be restructured to lower the overall budget. This will bring down the break-even point and make it easy for marketers to achieve it. Achieving break-even ROI is also good sometimes, as the prospects might be converted into buyers in the future, if not now.

Positive ROI

Once the campaign hits the break-even point for direct mail ROI, the company will start making positive ROI. This happens when all the budget spent on the campaign is recovered, and profit-making has started. Brands should always start smaller and targeted campaigns to test responses. Also, they can use the ROI calculator prior to the campaign for estimating the direct mail ROI. The results can then be used to decide on the size and budget for getting assured positive ROI. Direct mail should be conducted in a manner that helps achieve positive ROI.

Negative ROI

Estimate the direct mail ROI in advance so that the returns are not negative. Negative ROI fails the purpose of the campaign. It drains the advertising budget of the company and gives absolutely no returns. The direct mail ROI calculator will help you create various situations to avoid negative ROI. By adopting this method, marketers can make the necessary changes beforehand to assure break-even and positive ROI.

Tips to Maximize Response Rates and ROI

There are various combinations, techniques, and ideas used to plan and execute direct mail campaigns. The most widely used formula is the 40/40/20 rule of direct marketing.

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Mailing Lists
Out of the complete success ratio of a campaign, 40% is due to the mailing list selection. Targeted mailing lists improve the chances of positive ROI. These lists should contain addresses of people who are likely to be interested in the offerings of the company and find them useful. Demographic targeting based on gender, age, annual income, profession, and location can be used to segment and target. The more personalized the list, the better the results. PostGrid allows you to verify all the addresses in your mailing lists and produces high-quality data for you.

Offers
40% of the performance of direct mail is decided by the offers given to the audience. As soon as they receive the mail, they are sure to wonder what it contains for them. Useful products advertised with exciting offers motivate people to know more about them or even buy them. An upfront proposal should be made for the audience that promises them a reward against an action made by them. The reward and the CTA should both be clearly defined and should have the capability to persuade the audience. Discount codes and coupons work great as offers on direct mail.

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Design
20% success of a direct mail marketing campaign is dependent on the design, layout, text, and overall look of the mail. Innovations and powerful texts should be teamed up to create impactful designs that are eye-catching. Direct mail has to be pleasing enough so that a person at least opens it and views its content. Even if the direct mail reaches the right group of audiences and has the best offers, it is impeccable that they open it. Hence, creativity is a must.

  • Always use unique phone numbers, codes, and URLs to track a particular direct mail campaign’s responses. Also, you can always record the calls to understand and learn from these responses.
  • Mail frequently to record the patterns of responses and take complete advantage of high response periods.
  • You can alter your tactics regularly to see what works best for your company. People react differently to different direct mail. Finding out what they like best can be a huge advantage.
  • Keep your mailing lists refined to get the most out of the campaign.
  • Pay attention to the quality more than quantity. For getting optimized direct mail ROI, focus on the customers, and make them feel connected. This is done by designing personalized direct mail that is both useful and attractive to people.
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