Calculating Direct Mail ROI

Calculating Direct Mail ROI for Financial InstitutionsComing from Procter & Gamble, I’m a firm believer in measuring results. Too often for small to medium-sized financial institutions, little tracking is done. We measure success or failure at the campaign level, instead of looking at the pieces of the puzzle.

Direct mail is a strong driver of any financial marketing campaign. We all know it works, but how do we quantify the effectiveness? It’s surprisingly easy.

Save the List

Keep a record of who receives each mailer. Keeping a record of the account number or member number of each recipient is key to evaluating the campaign.

Check Your Records

Three to six months post-mailing, check your core data to see if the member acted. I had our data ops team put together a query to check each product by contract date. I export the core data for the product, then compare the member numbers from the mailing to the list of new product accounts.

Evaluation

According to the DMA, the average response rate for B2C direct mail is between 3.5% to 5% depending on the type of mailing. That said, a well targeted direct mail campaign to current members should see significantly higher results. I see a 7% or higher response rate for loan-based mailing to members 50 years of age and older. While response rate is a great measurement, Return on Investment (ROI) is better.

For ROI, I go with a back-of-the-envelope-style calculation. It’s not accurate, but it’s close enough to illustrate the point and ensure you stay on track.

Put together an Excel sheet with the following data for a loan mailing:

A B C
1 Total # Mailed 150 From your list
2 Total Cost $350.00 Invoice from your mailing/printing service
3 Cost per Individual Mailed $2.33 =B2/B1
4 Converted 17 From comparing your list to core data
5 Conversion Rate 11% =B4/B1
6 Average Loan Amount $17,450.00 From core data, average the loan amount for all the converted
7 Average APR 1.27% From core data, average the APR amount for all the converted
8 Average Term in Years 5 From core data, average the term for all the converted
9 Revenue $3,390.71 =(B6-B6/B8/2)*(B7)*B4
10 Revenue minus marketing cost $3,040.71 =B9-B2
11 ROI 969% =B9/B2

[Download the table as an Excel sheet (xlsx)]

Column A is the description and Column B is your data. Column C has the equation or source of the data. If you have access to a financial calculator you can calculate the actual revenue instead of taking the (APR) times (loan amount minus half a year’s worth of payments). In the example, our ROI is 969%. If you have the overhead costs for the loans, you could subtract that from the revenue as well for a more accurate ROI. Keep in mind, the more accurate you make this model, the more time it takes to evaluate each mailing.

What About Using a Landing Page to Track Conversion?

Using a landing page with each mailing makes tracking engagement much easier. By directing members to visit a specific page on your website that will only be advertised via the mailer seems like a simple way to track whether your mailer is working, ex: www.yoursite.com/bonus50. However, if your membership is like mine, it skews 60+. While there are many tech-savvy seniors, many still prefer to engage with your staff through phone calls or in person — meaning you’ll miss out on tracking these conversions.

Do you have a suggestion to make this post better? Send me an email at brent@dbrentarnold.com.