Direct Mail Retailing? Yes, It is a thing.
Manage Your Direct Marketing Efforts Based on the Cost Per Sale
by Jamel Ages, National Director of Sales for Wedrive Automotive
#CustomerAcquisition #Strategy #Personalization #ROI
Today, I’d like to talk about how to better understand how your direct marketing budget is working for you by evaluating your cost per lead, cost per engagement, cost per sale, and determining your
allowable cost per sale.
The first priority in evaluating the effectiveness of your direct marketing campaign is to define your
customers’ decision steps. This is important because there is a huge difference between a lead, and a customer, and learning where that line is drawn will assist you in better allocating funds.
Define the Customer Journey to Separate Leads from Customers
Let’s first define the customer journey. As a prospect moves up the inquiry chain, they become a high-quality lead—but they are all considered leads. The ultimate response is the actual sale. If that sale is the customer’s first purchase, then they are considered a new customer acquisition.
Here’s an example: a buyback offer is made to your target audience of prospects. Your prospect first
needs to know about terms of the offer and then contact your dealership for more information. By
responding with a request for more information, your prospect now becomes a lead.
This individual lead then schedules an appointment with your dealership for a certain date and time to get an appraisal, providing details about their current vehicle condition, mileage and possibly vehicles they are considering upgrading to. This is still a lead, but the lead is more qualified and has greater value than responders who responded to an offer you sent them without providing any actionable data or scheduling an appointment. This is considered an engagement. Once the prospect trades-in, gets service done to their current vehicle or purchases a new or used vehicle at your dealership, they are considered a sale.
Determine Your Cost Per Lead, Cost Per Engagement and Cost Per Sale
Let’s assume your 10,000-piece mailing costs an average of $750 per thousand in the mail for a total of $7,500. If you generate a 1% lead response rate in conversions for a total of 100 prospects, then your cost per lead is $75 or $7,500/100. That’s good information, but what you really want to know is what your cost per sale is, since that’s your primary KPI.
In this example, you convert 50% of those 100 conversions into paying customers and your cost per sale is $100 for each contract. The results of your campaign are $75 cost per lead with a sales conversion rate of 50% for a cost per sale of $150.
Most direct marketers evaluate direct marketing campaigns based on the cost per lead or CPL
(sometimes known as a cost per conversion), and cost per sale or CPS (also known as cost per unit). The ultimate key performance indicator (KPI) is the cost per sale, as that’s what you should be focused on to optimize your strategy properly and maximize your ROAS [return on ad spend].
Let’s further stipulate that you have determined that you can afford to pay $250 cost per sale (now
called an allowable cost per sale) and that your business plan calls for a net enrollment of 600 new
customers in the next 12 months. Your calculated total budget needs to be $150,000 or 600X$250. (Of course, your $250 cost per sale would be based on a campaign with 120,000 or more mailings rather than the small 10,000 piece mailing example used to simplify the calculations.)
Using Your Cost Per Sale to Determine Future Mail Quantities
You need the highest approved allowable cost of $250 per sale in spite of your achievable allowable on the quantity you mailed yielding $75 per lead. You will probably determine that you do not have the necessary mailing list quantities or other cost-effective circulation to achieve the 600 net new customer goal. You must increase your circulation substantially to win 600 net new customers in 12 months.
Fortunately, you can now expand your circulation to include less qualified prospects until your average cost per sale increases from an average of $150 to $250 for each sale. As a cardinal rule: When you
expand your circulation or increase your mail frequency to your core list, the cost per sale will increase as you increase market penetration.
The bottom line is that some of your channels and efforts will bring in new customers below your
allowable cost per sale, and other efforts will exceed your allowable. The trick is to end up with an
average KPI of $250 cost per sale at the end of your campaign. These numbers will become further
refined as the campaign continues, allowing you to adjust as necessary in order to meet your sales
As the numbers grow, you’ll notice the math becoming more complex and the insights can become
more difficult to ascertain. That’s why I would highly recommend partnering with a data-driven targeted marketing provider who can provide real-time analytics and attribution reporting for you and determine the best course of action. If you’re interested in such a partnership, feel free to contact me today