|Question:||How do you calculate the return on investment for a direct mail campaign?|
|Answer:||To make a simple calculation for the ROI you need the following information:|
(A) The total costs of the campaign
(B) The total number of direct mail pieces (newsletters)
(C) The response rate from the newsletters (what percent of the people who got your direct mail, for example, clicked through to your site?).
(D) The conversion rate (what percent of those who clicked through actually bought something)
(E) The average amount of sales per person who bought something based on the direct mail.
The ROI = ((B*C*D*E)-A)/A
You can refine this figure by actually calculating the exact amount of sales from all the people who bought something that came from the direct mail campaign (use this number instead of (B*C*D*E).
You'll find some calculators on the web that expect you to estimate the response rate, and if you think you should do this, great. For email, some people estimate response rates as high as 18%, but as low as 2% for direct mail. Realize, however, these are just estimates and a better way of calculating the ROI is on actual return, not expected return.
Having said that, we realize you might have to estimate the ROI to justify a campaign. Just appreciate that these estimates are really just guesses when it comes to your situation. An 18% response rate for email might be wildly high when it comes to your situation, your industry, and your customers. Frankly, we've talked with companies who revealed that this rate can be much, much lower!
Now, having said all of this, if you want to calculate your newsletter ROI, expanding on the relatively simple issues we just discussed, we suggest you read our article on the real story about ROI on newsletters. As the name implies, you will be able to not only calculate the real ROI for a newsletter, but gain a better understanding as well.