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The Average Response Rate
Think Customer Lifetime Value
By Steve Stallman, VP of Marketing, MailersClub

The principles presented in this article apply to any type of direct response marketing, such as direct mail, email, telemarketing, and infomercials. Direct response marketing, when conducted properly, is the most measurable form of advertising.

One of the most common questions I've heard over my 25 years working with direct response advertising is: "What is the average response rate?" The common misconception is that the average response range is between one-half percent and two percent. The real answer:

The is no such thing as an average response rate.

More importantly, it doesn't matter at all.

Here's why. Every company and every offer is unique. Your response rate will be based on several factors including, the list quality including the relevancy to the potential customer, the offer (the call to action), the price, the communication, use of personalization and color, and finally, the frequency.

However, focusing on the average response rate is completely the wrong thing to center on. The only thing that should matter to you is if the mailing is effective for you. Effectiveness is not measured by response rate, although it is part of the equation. There are two possible goals for your mailing.

1. For gaining incremental sales from existing customers, the goal should be if you make money on the mailing. See ROI calculations below.

or

2. For gaining first time customers, the goals should be if you will make money over the lifetime value of the customer. See ROI calculations AND Lifetime value considerations below.

Direct Mail ROI Calculations
For other forms of direct response marketing,
simple alter the below formula, applying the same principles.

Formula:

# of Pieces Mailed X
% Response Rate X
% Conversion to Buy X
$ per Average Order X
% Profit Per Order =
Total Profit from Mailing /
Cost of the Mailing =
ROI

For Existing Customers, End Here

For New Customers, Consider Lifetime Value

Customer Lifetime Value

Simplified Formula:

$ Average Order X
# of Orders per Year X
# of Years as a Customer X
% Profit per Order = Customer Lifetime Value

Completing these calculations gives you the answer to another important question: "How much would you pay for a new customer? The answer is just a few calculations away.

Steve Stallman
Chair, SCSC IMPACT - Sales & Marketing
VP of Marketing, MailersClub
SteveS@MailersClub.com