Chapter 57
Direct Marketing Revenue Goals

Ascertain how many direct marketing communications must be sent to achieve the revenue goal for a direct marketing campaign.

Direct mail revenue goals measure the effectiveness of the marketer’s direct marketing advertising by setting a revenue target, then determining the number of direct marketing pieces that need to be sent to achieve that target.

Where

DM = number of direct-marketing pieces

Rt = revenue target

Sa = average sale

Rr = response rate

Cr = conversion rate

Let’s assume an online retailer sells auto supplies seeking revenue of $400,000 and its marketing team wants to know how many direct-marketing communications to send to achieve the revenue target. The marketers know from experience that out of 200 customers who buy from their site each day, 150 buy products. This yields a conversion rate of 75% (for more on this, see Chapter 54 about the conversion rate). Those who buy, spend an average of $300. The marketing team has done its homework on the industry and knows that the average response rate is 2% for direct-marketing campaigns promoting auto supplies:

If this marketing team is creative, they might be able to create a message that is so compelling it increases the response rate to 5%. This improvement would decrease the number of marketing pieces needed to send to 35,555 pieces:

The benefit of direct marketing revenue goals is that they help marketers set specific revenue and resulting cost targets for a given campaign. In the case of the example used above, another benefit is that the retailer gains 1,333 new customers (88,889 × .02 × .75) who might develop long-term loyalty. While this particular campaign may produce the $400,000 revenue increase, the marketer is seeking to convert those buyers into loyal customers over the long term, and the marketer also has the potential to acquaint those who do not initially respond into future customers. Since they are now aware of the company and its products, they add to the retailer’s customer foundation and create, in effect, an ongoing customer revenue stream.

These benefits are partly due to the effectiveness of direct mail as a marketing tool that generates a specific response from target customers based on crafting a relevant offer. Marketers can set a revenue target and can expect to generate measurable results tied specifically to the campaign. This degree of measurement precision is harder to achieve with general awareness marketing, like television or radio broadcast ads, because they are designed to develop an image rather than inspire a call to action for customers.

Direct marketing revenue goals are a useful measure for specific campaigns, but ongoing success with this format requires marketers to have unique offers each time they are relevant to the target customer’s needs and are consistent with their company’s strategic objectives. Since direct marketing is often used for promotional offers, it is challenging for companies to regularly offer limited time period discounts without the risk of training their customers to always wait until the next price promotion. Furthermore, frequent promotions may erode brand value at both the product and corporate level if done too frequently.

Direct marketing is also used to develop a one-to-one dialog with loyal customers, enabling marketers to tailor their messages accordingly. While customer loyalty is certainly an important goal for most companies and marketers, actually developing it requires more than setting revenue targets for specific loyalty-building campaigns. The message to loyal customers must resonate with them, suggesting to them that the company truly understands their needs and, perhaps even more important, that their continued loyalty is appreciated. As with many other marketing metrics, the measurement is the easy part. The development of the right strategy and campaign that yields the desired results is quite challenging, however.

Marketers may be tempted to adjust the metrics in the formula to fit their revenue goals, irrespective of industry or competitor response and conversion rate averages. The challenge is remaining realistic about the expected performance of a campaign, since its success depends on many factors: the right target audience, a well-conceived campaign and message, imaginative creative design, a product that the customer wants, and, the right offer. These various criteria are critical components of the marketer’s overall plan. Yet even if these are each executed flawlessly, there is still the chance that the target audience will not respond as expected, since it is quite difficult to predict actual behavior. Therefore, marketers are encouraged to review past campaigns and those of competitors to determine the strengths and weaknesses of each marketing program.

These statistics are found in specific reports within the marketer’s company. For example, revenue targets are usually established at the corporate level then translated into more specific targets for each product line or retail outlet. Average sales statistics will be based on company averages and, while possibly found in end of year financial statements, are more likely to be contained in the product line or per store profit and loss reports as a footnote measure. Chapters 53 and 54 provide guidance on the response rate and conversion rate statistics, respectively.

iPhilippe Graner, Data Drive: Planning for Profitability, Target Marketing, March 1, 2011. Retrieved May 3, 2017 from http://www.targetmarketingmag.com/article/determine-your-marketing-campaign-s-profit-generating-response-rate-breakeven-analysis-417197/all/; T. Egelhoff, “Direct Marketing: Why it Works and How to Use It,” Smalltownmarketing.com Retrieved May 16, 2017 from http://www.smalltownmarketing.com/formula.html