Measuring Direct Mail: Fundamental KPIs
In our last blog post, we talked about different ways to track responses to your direct mail. Once you have that data, however, you need to take the next step to determine if your campaign was effective. Measuring direct mail success is essential for most marketers, who need clear results to justify the expense.
There are a lot of different metrics you can look at to measure the success of your direct mail. But first, you need to know the primary goal of your campaign. Are you trying to build brand awareness? Generate leads? Increase revenue? It’s important to nail down exactly what you’re trying to do because your marketing goals will determine which Key Performance Indicators (KPIs) you need to measure.
To get you started, here are six fundamental KPIs to help you measure your direct mail success.
Your response rate tells you how many people responded to the CTA(s) in your direct mail. Calculate the response rate by dividing the total number of pieces mailed by the number of responses you received. If you include multiple CTAs in your direct mail, make sure you’re tracking them all for an accurate response rate.
Conversion rate takes response rate a step further—these are the people who complete the action to become customers. For example, if someone visits your landing page, that’s part of the response rate. But if they sign up for your service, that’s a conversion. To calculate the conversion rate, divide the number of responses by the number of conversions.
Return on Investment
Measuring your return on investment (ROI) is a useful KPI because it tells you if your marketing efforts are financially successful (i.e., did you make more money than you spent?). One caveat with ROI, however, is that it assumes all revenue growth is coming from marketing. If you’re able to look only at revenue generated from customers who received your direct mail, you’ll get a more accurate picture of your direct mail ROI.
Did you know that you can spend up to seven times more acquiring new customers than retaining your existing ones? This is why it’s important to have a retention strategy. Depending on the pace at which your business moves, you may look at your retention numbers weekly, monthly, quarterly, or yearly. To figure out your retention rate for your particular time frame, you need to know the number of customers you had at the beginning, the total number of customers you have at the end, and how many new customers you acquired during this period. Once you have this info, use the formula below to calculate your retention rate for the given time frame.
Cost Per Acquisition
Your cost per acquisition (CPA) is how much you spend to gain a new customer. You can look at your overall CPA across all marketing campaigns and channels. You can also drill down into each campaign or channel to see which achieves the best CPA to optimize future campaigns. For this metric, the lower the better! To calculate your CPA, divide the number of conversions by the total cost of your campaign.
But how do you know how much is too much to spend on acquiring a new customer? That’s where knowing your average customer lifetime value comes in handy.
Customer Lifetime Value
Your customer lifetime value (LTV) is how much you can expect an average customer to spend with you over time. While calculating your LTV is a bit more complicated than the other metrics we’ve discussed in this post, it’s essential for two reasons.
- Your LTV gives you a cap when it comes to cost per acquisition. If your LTV is $5,200, you know that your CPA needs to stay below that number or you will lose money on the acquisition.
- Your LTV lets you know how long it will take for you to recoup your marketing costs. If your LTV is based on a customer lifespan of five years and your CPA maxes out your cap, it will take you five years to make that money back.
To figure out your LTV, you need to know the average number of transactions as well as the average value of those transactions. If you don’t readily know your average transaction value, you can divide your total revenue for the past year by the total number of transactions for that same period of time. Likewise, to figure out your average number of transactions, you can divide the total number of transactions over the past year by the number of customers you have. Multiply those two numbers to get your average customer value.
Once you know your average customer value, you need to look at the average lifespan of your customers. How long do they stay active customers? Multiply your average customer value by the average lifespan, and voilà, you’ve got a customer lifetime value.
Of course, there are plenty of other metrics you can track as well. But if you start with all or some combination of the KPIs above, you’ll be in a much better position to make informed decisions on your future marketing efforts. For more information on how you can optimize your direct mail, drop us a line.