New clients come to us with two different scenarios for their direct mail budget:
- One group already has a budget and wants to know what can be done with it. They are usually looking for ideas and a proposal.
- The other group knows what they want to do – and often how many pieces they want to mail – but want to know how much it will cost. They are usually looking for an estimate.
What they need is a direct mail budget.
Both groups have some sense of what they want to spend. It is usually based on an amount of money that has been allocated for a particular type of program.
Most organizations budget a specific amount to marketing based on the last year’s budget combined with anticipated projects for the coming year.
We don’t like either of these approaches. We think a better approach is to build a budget based on the goals of the program – or even better, based on the sales goals of the business.
Here’s a better approach:
You start with your revenue or sales goals – let’ call it $1 million in sales.
If the average sale is $10,000, you will need 100 sales to reach your goal.
Assume that you can close on 50% of your proposals. You will need 200 proposals.
Let’s say that 25% of your sales leads agree to proposals. You will need 800 leads.
If you are generating a 1% response rate on your direct mail, you will need to mail 80,000 pieces to reach your goal.
If your in-the-mail costs are $.75 each, you will need a direct mail budget of $60,000.
Pretty simple, right? So why don’t more businesses use this approach?
All of these numbers are hypothetical, but not uncommon.
And because we are working with a known mailing format, we know how much our mailings will cost and we can calculate how much money we will need to spend to achieve our goals.
Of course, we haven’t included some other costs that may be needed during the sales process – for follow-up mail, phone and email as well all marketing collateral to support the sales effort.
Another factor to remember is that over time, many of the leads that do not covert initially will eventually convert assuming you can stay in touch.
Written by Bob McCarthy
This article may be reprinted without permission as long as the article includes the following credit: Bob McCarthy is a freelance copywriter and consultant specializing in direct marketing and lead generation. Bob can be reached at 508-473-8643 or by email at firstname.lastname@example.org
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