Direct Response Mail
JEROME LEWIS, THOR INFORMATION SERVICES
Direct mail is a broad term that includes the following types of mailed promotions:
Institutional direct mail serves to promote the name of the publishing house with no reasonable expectation of sales revenues.
General direct mail usually involves the mailing of seasonal catalogs to bookstores and libraries with the hope and expectation that revenues will be generated, although they may be hard to measure and link to the mailing.
Direct response mail is what most people mean when they say "direct mail." Informing the market place and soliciting responses in the form of revenues are the raisons d'être for the mailing. Single piece, disciplinary, and special sale catalogs fall within this category.
Text adoption mail is often included in the term direct response mail, but by its very nature and objectives it really should be in a category of its own. With this type of mailing the publisher expects to receive exam copy requests and future orders for classroom use.
This paper will deal only with direct response mail, or DRM, focusing on the two major elements of cost: mailing costs and costs of goods sold (royalty inclusive).
Mailing Pieces/Insertions/Envelopes. In smaller mailings, this will be the most expensive category. Decisions made here about the number of parts to each mailing and the style and aesthetic impact sought will determine eventual costs. In-house estimates and external bidding are essential to cost containment. The degree of response needed to reach break-even or better is driven by cost.
Mailing Lists. Whether one seeks faculty or book- buyer lists, library or association lists, periodical subscription or international lists, the closest correlation possible must be drawn between the contents of the mailing and the lists that will achieve the best results. Developing this correlation is known as "targeting." The person responsible for mailing- list acquisition must do detailed research in order to match (target) the mailing piece to the market place. The resources you should use in this process include a history of your prior mailings, information from your counterparts at other presses, and a mailing-list broker who can give you client histories. Cost containment principally deals with the price per thousand labels; sometimes the "right" list may have to give way to a cheaper, less targeted list to avoid a cost level too high to reasonably recover. The trading of mailing lists between presses should not be overlooked.
Lettershop Services. Lettershop services are the costs associated with putting the package together, affixing mailing labels, and delivering it to the United States Postal Service (USPS). Costs incurred depend upon the number of parts to the mailing and the difficulty level of assembling them. While some cost containment can result from carefully choosing an appropriate lettershop and from maintaining a cordial, ongoing relationship, savings here will not have a major impact on overall costs.
Postage. Although you'll be dealing with the only game in town (USPS) and a "one price fits all" structure, there is still some room for cost containment. Those who design and produce mailing pieces must stay within USPS guidelines for size and weight, location of the mailing label, and the language in the indicia (the box that states that post age is prepaid). Get to know someone at your local (drop) post office; sooner or later you're going to need some help.
Table A incorporates assumed costs of mailings of 5,000, 10,000, and 20,000 pieces for the same DRM campaign. Note the relationship between the number of pieces produced and the cost per thousand pieces mailed: the latter decreases as the former increases. The decrease in cost per thousand pieces mailed is to be found within the mailing pieces/insertions/envelopes and lettershop categories; the other costs should not vary much per thousand pieces mailed.
Cost of Mailing Model for Direct Response Mail
- of Pieces Produced and Mailed 5,000 10,000 20,000
Mailing Pieces/Insertions/Lettershop $1,345 $1,690 $1,880 Mailing Lists 450 900 1,800 Lettershop Services 150 300 600 Postage 555 1,110 2,220 Total Cost $2,500 $4,000 $6,500
Divide Cost by # of Pieces =
Cost per 1,000 Pieces Mailed $500 $400 $325
A direct mail plan should always begin with consideration of cost. Lowering costs reduces the level of response needed to run an effective campaign; the reverse is equally true. Table B will give cost recoverability and profitability comparisons and will show their symbiotic relationship to the elements in Table A.
Costs of Goods Sold
One must conceptualize the difference between current titles and those long and deep in inventory. For the former, bills have only recently been paid, titles are carried in inventory at original cost, and direct mail campaigns will create a high cost of goods sold, necessitating a high rate of response. For the latter, bills have been paid long ago ("sunk costs"), titles are carried in inventory at or close to zero cost, and direct mail campaigns will create a low cost of goods sold and will be able to sustain a lower rate of response. Royalties paid to authors fall within cost of goods sold and should be considered when assessing overall costs and profitability. Each author's contract will deter mine the amount of royalties to be paid, but generally no royalties will accrue from a special sale catalog of highly discounted titles.
Table B uses the costs per thousand pieces mailed shown in Table A and assumes various average dollar responses per order. At each level of cost and dollar return, one can see the percentage response needed to break even on the mailing costs, not taking into account the cost of goods sold. For instance, at a cost of $500 per thousand pieces and a $30 average order, a total response of 1.67 percent would be needed to break even on mailing costs. If a judgment is made that this response rate cannot be achieved, one should consider reducing mailing costs. For example, with costs of $325 per thousand pieces with the same average dollar return, only a 1.08 percent response would be needed. The amount available to spend on mailing costs (Table A), one could say, is a number that is "backed into" from the average order amount in Table B. The purist might argue that mailing costs should not have to depend on the interrelationship between two tables. Yet, when a press works forward (which happens too often), by the time all costs and responses are in, it will no longer be possible to recover the mailing costs. The question, then, is does the dog wag the tail or the tail wag the dog? In a DRM campaign the goal is profitability after recovering mailing costs and costs of goods sold (including royalties).
Break-Even Model for DRM Mailing Costs Cost per 1,000 Pieces Mailed Average $ Per Order % Response to Break Even Traceable Response "Echo" Response
$500 $20 2.50 1.67 .83 $30 1.67 1.11 .56 $40 1.25 .83 .42 $50 1.00 .67 .33 $400 $20 2.00 1.33 .67 $30 1.33 .89 .44 $40 1.00 .67 .33 $50 .80 .53 .27 $325 $20 1.63 1.08 .55 $30 1.08 .72 .36 $40 .81 .54 .27 $50 .65 .43 .22
Total response has two distinct categories: traceable and "echo." A traceable response occurs when the order can be matched directly to a mailing, either because of a "key code" placed on the mailing label, return of the order form, or some other ascertainable factor. An "echo" response relies on faith in the fact that some orders that cannot be directly matched to a mailing would not have been received but for the mailing. Nontraceable orders received from libraries, bookstores, and individuals after the mailing has dropped (in the absence of any other promotion) are said to be "echo" orders, apparently motivated by the mailing but lacking absolute evidence. Those presses that have studied the "echo" effect (the difference between total copies ordered and total traceable) have found that the "echo" varies from title to title and from press to press. There is no absolute "rule of thumb" that can be applied; for the purpose of Table B, an "echo" of one-third has been applied. This means that one-third of the total units ordered will be "echo" orders. Said another way, the ratio of traceable to "echo" orders is two to one. This is an arbitrary choice, the purpose of which is to illustrate the existence and importance of "echo" response.
A mailing cost of $325 per thousand pieces with a $30 average response, as stated above, will need a 1.08 percent response. If the traceable response is .72 percent, the "echo" response (as assumed) would be .36 percent. Although it's good to know that the "echo" effect exists, it would be preferable to achieve a 1.08 percent traceable response and know for sure that mailing costs have been recovered. And if an "echo" response does occur, then there will be an additional .54 percent response (1.08% to .54% = 2 to 1) to apply toward all other costs and perhaps lead to profitability.
Much time and effort in a DRM campaign is spent on putting together the "offer" (the mailing piece), generating the mailing list, and dealing with questions of aesthetics. More time should be spent in the planning stages on the financial aspects of mailing. Establishing tables or models should aid in understanding cause and effect as they relate to the results of a mailing campaign. This will enable the DRM person to deal with the concepts of cost containment, results-oriented planning, and response tracking.