Small business marketers run into a common issue with direct mail. The revenue generated from first-time conversions on a mailer may not deliver a positive return on investment. Discouraging for sure. But, here's the thing. You need to step back and take all the focus off that first round of responses.
Now look at the big picture and the X Factors. These are cross-sell, up-sell and repeat sales. And this is where lifetime value, or LTV, of a customer comes into play.
Take a look at fast food and casual restaurants, such as McDonald's or Chili's. They both use direct mail in their advertising mix. Taking into consideration the typical response rate, the revenue they will likely earn from first-time conversions is well under the cost for advertising.
So why do they do it? It's the cross-sell, upsell, repeat purchase opportunity and LTV.
Chili's knows that many first-time customers coming in for an advertised dinner special will be back time and again for full-price meals. The Golden Arches knows that the 99 cent Quarter Pounder is best devoured with a pile of french fries and a cold Coke. And a hot fudge sundae. Just saying.
Bottom line? While it may originally cost them $100-150 to bring in a new customer from their direct mail campaign, the LTV of these customers would definitely show a very healthy return on their investment.
With all that said, if you're among the 80%+ of small businesses that operate in the US today, you’re looking to make the most of every marketing dollar. Your direct mailing needs to deliver a positive return. So, when developing a new campaign, your cost/benefit analysis needs to take into consideration the X Factors: cross-sell, upsell and repeat business.
If your business is primed to benefit from the X Factors, your lifetime return on investment could be the perfect reason to move forward, instead of holding back.