Penny Wise and Pound Foolish: Focus on ROI vs Costs when Choosing a Direct Mail Partner


May 8, 2015 -

According to Cambridge Dictionaries Online, to be penny wise and pound foolish is… to be extremely careful about small amounts of money and not careful enough about larger amounts of money.  So, why does that matter when you are choosing a direct mail partner?  Let me explain.

Successful business owners understand that every penny counts; however, what you may not know is the way you count those pennies can impact your profits.

Too often, owners fall into the trap of measuring only costs instead of ROI.  Direct mail campaigns are a perfect example of this.  Though your direct mail pricing should be competitive, it is a common mistake to focus on the price per piece more than the response rates, and in turn the sales revenues generated from those responses.

Let’s take a look at a specific example and do the math.

An automotive dealership wants to send out a 10,000 piece mailing.  They bid the project out to two direct mail providers.  The first is a consultative direct mail partner who emphasizes how they target your best in-market buyers.  They educate you on the influential principles being applied to your messaging, and guarantee the perfect in-home delivery dates needed to maximize your ROI.  The second choice is a direct mail provider that offers to “replicate” someone else’s mail piece concept and is selling you on the fact that they can save you .03 cents per mail piece.

Established Direct Mail Marketing Partner (like The AMG Team)

10,000 (piece mailing) x $0.50 (per mail piece) = $5,000 (direct mail investment)
10,000 (mail pieces) x 1.5% (response rate) = 150 (responses)
150 (responses) x 15% (closing ratio) = 22 (units sold)
$2500 (gross profit per unit sold) x 22 (units sold) = $56,250 (gross sales)
$56,250 (gross sales) – $5,000 (original direct mail investment) = $51,250 (net revenue)

 

Second Choice Provider Selling Cheaper “Replication”

10,000 (piece mailing) x $0.47 (per mail piece) = $4,700 (direct mail investment)
10,000 (mail pieces) x 1.0% (“Cheap guy” average response rate) = 100 (responses)
100 (responses) x 15% (closing ratio) = 15 (units sold)
$2500 (gross profit per unit sold) x 15 (units sold) = $37,500 (gross sales)
$37,500 (gross sales) – $4,700 (original direct mail investment) = $32,800 (net revenue)

Initial Investment Savings by choosing the guy who says, “We can do that for .03 cents less!” = $300

Net Revenue Lost by choosing the second choice provider = $18,450

As you can see from the math above, our automotive dealer would save $300 on his initial investment.  Seems like a good deal, right?  Wrong!  He lost $18,450 in net revenue due to a lower response rate resulting in less cars sold.

The key takeaway here is that by focusing on ROI instead of initial costs your net revenues go up!  The AMG Team focuses on maximizing your sales revenues and will dependably exceed your expectations every time.

Contact Us

Price is very important, but ROI is most important.  Avoid being penny wise and pound foolish!  Contact Us or call us at 800–648–3107.

Penny Wise and Pound Foolish: Focus on ROI vs Costs when Choosing a Direct Mail Partner | Blog