Posts filed under ‘ROI’
Q: I am doing some research for a large financial institution and am trying to determine the size of the consumer list market in the US (in terms of dollar volume, or number of list brokers, or any other sizing approach). Any help you can provide is appreciated.
PS: You have a great website and service offering
A: Hey — thank you for the wonderful compliment. It is much appreciated! : )
And, you are right — this is quite the daunting task. Here’s some information that we found to help you with your research project. We hope that this will fill in some of the holes and provide a more complete picture of the list industry and it’s size.
To start at the macro level, within the direct marketing industry there are over 14,000 individual contacts, and approximately 9,000 direct marketers, service firms and suppliers. These folks break down into the following categories:
- 19 categories of direct marketers
- 15 categories of service firms and suppliers
- 5 categories of creative services
When looking specifically at the mailing list business, there are 2,333 list companies as identified by InfoUSA. And, our research found that there are more than 60,000 mailing lists available in the direct marketing marketplace.
Now, according to the USPS’ Annual Report, they mailed 103.5 billion pieces of standard mail — which consists primarily of direct mail. The USPS reports that they made $20.8 billion for this standard mail in postage! Wow!
So, here is where we pull out our calculators and make some assumptions — so please take these as just that. Based on findings from the Direct Marketing Association, this mailing volume (as reported by the USPS above) normally equates to about half prospect mailings and half customer mailings. Therefore, we project this to mean approximately 50 billion prospect mailings (approximately half of the 103 billion pieces mailed). You could then argue that at $50 per thousand (on average) mailing list costs, this would equate to approximately $2.5 billion in list sales revenues. Again, this is an estimation on what we know to be true combined with industry averages. However, it is as close as we can estimate based upon the available information out there.
Here is some additional data to consider. This comes from the Direct Marketing Association’s 2007 Direct Marketing Report (available for sale in their bookstore):
- $173.2 billion were projected to be spent on direct marketing in 2007 (this projection was made in October — so it’s probably very accurate)
- This equates to a 4.4 percent increase over the $166 billion actually spent in 2006.
- The slowing economy has been taken into consideration in these numbers and adjusted for accordingly.
- The growth rate in direct marketing expenditure for 2008 is expected to bounce back to 5.7 percent, or $183.1 billion in direct marketing advertising expenditures. Above-average spending growth is expected in commercial e-mail, Internet marketing, DRTV, and direct mail (including catalog).
We hope that this gives you some additional food for thought for your research! Best of luck! And, if any of our readers has more food for thought or hard numbers on this question, please add your comments. Thanks!
Q: I’ve heard the term “control group”. Can you tell me what this means?
A: Gladly! A control group is a vital part of the direct marketing test process, because it helps validate testing results and helps to prove the ROI of a specific campaign. Simply stated, a control group is a test cell of customers or prospects who receive no special treatment. Imagine that you are trying to prove the concept that a catalog specifically targeted to your customer segment of families with children will boost sales of those types of products. So, you’ll identify which of your customers have children, and send the special catalog version to this group. In this case, a control group could be another segment of families with children who simply receives the normal, non-versioned catalog. If your versioning test is successful, the group that received the special catalog will respond at a higher rate, and buy more products than the similar, “control” group that didn’t receive the targeted catalog.
Another example of the use of a control group is when you are trying to validate your statistical model. For one of our clients, for example, we mail a modeled compiled list in some very targeted geography. For each mailing, in addition to selecting prospects who are most likely to become buyers (based on our model), we also select a random group of 10,000 names, selected regardless of model score. The high-scoring model should perform better than the control group, which validates that the model is still predicting what it was built to predict (propensity to buy). In other words, we should see more buyers coming from the high scoring group than from the control group. If we start to see the control group performing as well as the high-scoring group, we’ll know it’s time to re-build the model!
In a nutshell, direct marketers use control groups to validate the results of a variety of tests, from lists, to creative, to offer.
Q: I’m new to direct mail . . .what kind of response rates can I expect from a campaign?
A: Response rates vary widely depending upon several factors: your offer, your market, your creative format, your industry. Therefore, without knowing more about your specific campaign, it’s tough a give you a great estimate. We’ve seen double digit response rates (very good) for very targeted B2B programs. On the flip-side, for example, a typical response rate for a financial services offer to consumers (i.e., credit card, loan offer) is usually less than .5%. So, it really depends on your specific circumstance. If your firm has never done direct mail and you have to plug in a number, you can use 1% as a stake-in-the-ground.
Q: I keep hearing that using direct mail is passe. I know it seems to be expensive. Should I consider using other channels instead?
A: Yes and no. Direct mail can be expensive, but if the ROI proves that it more than pays for itself (in other words, you’re making more than you’re spending on the direct mail program), than you should definitely include DM. However, we believe in using a multi-channel approach when it makes sense. You should consider testing e-mail, telemarketing, and any other channel that reaches your target market. Again, there’s no one answer and no magic bullet. Test in small volumes (so you’re not wasting tons of money if the test doesn’t work) and you’ll find channels and markets that work for you.