Direct Mail is one of the most expensive methods of advertising, in terms of cost per contact. But, it can be one of the most predictable, and because of that, it could be the smartest choice. Is it right for you?

The simplest way to decide is to figure the cost of sending a piece of mail (including design, printing, list and mailing costs) against the profit of a typical sale. 

Let's say you want to advertise your carpet cleaning business. You want to send an 8.5 by 5.5 inch postcard to 1000 homes. Here are your costs:

As you can see, your costs for the mailing work out to nearly $1 per piece. You normally charge $99 for a three room cleaning, but for this mailing you wanted to offer a special price of $69. After your costs, you'll clear $27 in profit on the sale.

At $27 in profit you would need to make 37 sales to come out on top ($27 x 37 = $999).

Is that a reasonable expectation?

Sorry, it's not. The rule of thumb for direct mail is that 1% is a good sales percentage. You might even plan on only .5% to be on the safe side. That means you should expect only 5-10 sales out of 1000 pieces of mail.

At 1%, it's costing you $97.50 to get a customer!

But hold on for a moment...

There are some other considerations. If your carpet cleaning service is so good that you get lots of repeat customers, this might still be a profitable marketing program.

Say your average customer spends $225 doing a whole house cleaning, not just 3 rooms. And say they also call you twice a year for this service. On top of that, your average customer stays with you for 2.5 years.

$225 average ticket x 2 cleanings per year x 2.5 years = $1125. If you have a 40% profit margin, you'll clear $450 on a customer over her expected customer life.

At that rate, spending $97.50 to gain a customer is a profitable decision.

You need to be keeping track of your basic business numbers

Knowing the average lifetime value of a customer is invaluable to making advertising decisions. You should also figure what it costs to get a customer now (divide your advertising outlay by the number of customers you have).

Knowing the average sales response makes deciding whether or not to do Direct Mail a no brainer.