ROI is a simple arithmetic ratio of benefits to costs (less the costs of course) expressed as a percentage and measures the magnitude of benefits to costs, benefits returned above costs, profits achieved after expenses, value of an investment, actual benefits, cost savings, and efficiencies obtained. ROI is a simple and powerful tool for analyzing costs and benefits.
As benefits are identified and expressed in monetary terms the detailed costs are counted. Then, the ROI is calculated by dividing the benefits less costs by the costs, and multiplying the result by 100%. Generally, a larger ROI means money well spent. Here are the three most important metrics to consider when producing a direct mail campaign.
Costs. This includes determining how much the administration, design, paper, printing and postage will cost the company. Some firms only want the best and will consider this aspect of the process secondary, while others understand the fragile economy and need to watch this number like a hawk. It may take cutting the designers time, using an intern to administrate the mailing and using the best deal on paper and printing, but cost can be kept very affordable on directing mailings greeting increasing the ROI.
Benefits. Ultimately, the benefits are based on the number of sales that were produced by the direct mailing. However, the benefits can sometime be hard to put into mathematical terms due to lack of tracking responses, whether by inquiry or sale. A high response rate on surveys (formal and informal) should be monitored along with sales to determine the actual benefit of the marketing campaign.
BEP. The Break-Even Point is the number of sales necessary for the company to reach profitability on the project. This is the key component for most executives in making direct mail marketing a continually viable medium for reconnecting to old customers and reaching new ones.