Direct Mail: Hidden Profits
Properly executed direct mail audits uncover new profit-making opportunities by increasing response rates and cutting costs.
The term “audit” carries negative undertones, because the IRS and other enforcement agencies use audits to reveal fraud or abuse that carries fines and other penalties.
But a well-done direct mail audit provides the reinforcement you need to execute some of your ideas and reduces the risk of taking a wrong turn by leveraging the perspective of an independent professional direct marketer.
The dictionary defines the auditing process as “an official inspection of an organization’s accounts, typically by an independent body.” So, the direct mail audit uses an authority on the subject to inspect an organization’s program by using an independent resource.
Companies that maintain a customer database, track all sales by promotional code and perform testing on a regular basis stand to gain the most from a direct mail audit. In other words, companies that do true direct response marketing will benefit the most from this analytical process.
But how do you know when you should perform an audit? The following scenarios signal it’s the right time to take a closer, objective look at the status of your program:
- Response rates continue to decline, and you want to confirm or discover why.
- You have lost some of your best people due to layoffs or other reasons, and you want assurances that your remaining employees are applying best practices.
- You are seeking an objective outside opinion about your direct mail advertising growth opportunities.
Keys Areas to Include in Your Audit
Most direct mail programs benefit from deeper scrutiny of the following program elements:
1. The master file. First, clearly delineate acquisition vs. customer or inquiry file activities. Even though the way you acquire customers dramatically affects the lifetime value of your customers, the consultant needs a clear understanding of your program as a whole to identify the opportunities.
The auditor then will put together your database segmentation strategies along with counts for each segment. A file layout for your master file reveals its flexibility.
The consultant also will want a random sampling of raw data for 100 records or so of your customer and inquiry database. Understanding the master file, such as its completeness, and business rule applications often reveals areas that require attention before the program can grow to its full potential.
2. The tracking system. Closely allied to the master file quality and back-end analytics is the tracking system.
One insurance marketer, for example, tracked leads from all channels but had no way of tracking those individuals who did not pass underwriting and were turned down, those who passed underwriting but decided not to buy, and those who bought. So the cost per lead was there, but not the critical cost per sale.
Immediately, it was clear that the underwriting department and lead system needed to link together to allow the evaluation of the marketing program’s effectiveness.
This tracking deficiency made it nearly impossible to test anything beyond a cost per lead. Clearly, the cost per lead alone is no way to manage any direct program without some ability to look at the conversion rate to sales.
Another marketer had not set up official business rules for the inbound telemarketing program, so orders were made without readily available tracking codes, phone numbers or e-mail addresses. The CRM software did not “force” entries of critical data for back-end evaluation or ongoing promotions to qualified inquiry names. This database was not set up for marketing, only for product fulfillment—a big missed opportunity.
3. The testing program. After performing many such audits, this is the one area where I think most marketers miss the boat. There is a tendency to major in the minors instead of the majors when it comes to the creative work.
It’s as if inexperienced direct marketers were planning the direct mail tests because they test small, often insignificant tweaks to the control. They look at attaching the response piece to the letter or creating a separate response device. They will test a package with a two-color vs. a four-color flyer or delete a publisher’s letter to see if this decreases response.
These are minor tweaks rather than breakthrough tests.
Remember this rule: You really don’t need to know, nor can you know, why something works or doesn’t. Research has nothing to do with testing. By the time you think you’ve got your package perfected, all of a sudden response rates drop for no known reason.
Large marketers test for breakthroughs that reduce the cost per sale by at least 15 percent to 25 percent. It is highly unlikely that tweaks will beat your control at that level.
Many companies have limited management and financial resources
for testing. So forget the small stuff, and concentrate on testing dramatic new package formats, offers, purchase prices and main selling propositions.
With the continuing rise in postal rates and decreasing percentage of package costs, increasing the items in the package and its costs gives creative teams more latitude than ever.
So focus on the pulling power of your package, and be aware that package costs may not be as critical as they once were. After all, with acquisition lists costing about $100/M combined with postage at $240/M, lettershop at $70/M and list preparation at $10/M to $20/M, you already have spent more than $400/M without printing anything.
4. The acquisition list universe. Another area direct marketers should pay more attention to is a clearer understanding of their acquisition list universes. When I refer to “list universe,” I am talking about the size of the direct mail’s control lists when combined as a single list.
Every company has a limit on the size of its acquisition list roll-out potential.
To define its size means the company has tested and isolated a number of control lists that reliably yield the required allowable cost per sale or cost per dollar raised (in the case of fundraising).
Without this number, you and your marketing team cannot project your annual sales potential or persuade management to expand your direct mail program.
Tactics to Audit
No direct mail audit is complete without looking at the tactical issues. New opportunities for saving money exist in the processes. The direct mail audit should look at recent mail tapes to evaluate the list hygiene steps, looking for such things as dedupe quality, deliverability, NCOA processing, Direct Marketing Association pander file application and deceased person suppression, among other things.
Other key direct mail savings should include the evaluation of commingled mail and the fast-evolving personalized digital printing options.
Unfortunately, this article cannot get into all areas, such as multichannel direct mail support programs, customer profiling options or back-end fulfillment procedures.
But it is clear that only direct response mail marketers should consider an audit. The database applications, tracking and testing bind with the direct mail program to make it successful. So the professionally implemented direct mail audit looks at the total process to distill new marketing opportunities for making and saving money.
Ted Grigg is the founder of DMCG LLC, a direct marketing consultancy in Lewisville, Texas, that leverages his 25 years of experience in direct marketing on both the client and agency sides of business. He can be reached at (972) 459-6868 or through his Web site, www.dmcgresults.com.