Measuring Personalized Direct Mail ROI
When you are evaluating the success of a 1:1 direct mail campaign, how long of a window do you use to determine the dollars it generated? Do you cut it off after a week? A month? Several months? What about the lifetime value of the customer?
Lifetime customer value (LCV) is an overlooked metric that needs to be a larger part of how marketers measure their success. LCV can be difficult to estimate, but it’s important to keep the issue in mind. Customers gained through 1:1 printing tend not just to purchase more, but to be more loyal than customers gained through static methods. Thus, the benefits of customer retention must be considered alongside other factors in evaluating the cost-benefit equation.
How do you determine LCV? There are a variety of factors to consider:
- Churn rate. How often do customers leave your customer base?
- Retention cost. How much does it cost you to support, bill, and incentivize your customers?
- Periodic revenue. Do you have recurring revenue streams? How much do customers spend during an average period?
- Profit margin. You don’t have to calculate out LCV indefinitely. Many companies estimate their LCV out for three to seven years. Otherwise, it’s considered too speculative to be useful.
Even if it’s an estimate, LCV gives you a much better idea of what value your marketing campaigns are creating. For example, the Print on Demand Initiative case study archive contains a case study submitted by a small lawn care company that sent out a mailing of 300 1:1 pieces with great effectiveness. When the campaign revenue was considered in isolation, the mailing barely broke even. But the company knew that its customers tend to be very loyal over time, so the addition of every new customer meant several years of recurring revenue. As a result, the owner estimated the campaign ROI at 8000% on a LCV basis, something that made this a best practices case study.
How do you view your customers? On a one-off basis? Or as having Lifetime Customer Value?