The Unanswerable -- "What Will Be Our Average Response Rate?"

This question always comes from the uninitiated in the direct marketing world.

It comes about innocently enough from general agencies and large advertisers whose dropping sales are forcing them into the new world (for them) of the direct response strategy.

Their first question is: "What research do you have from reputable publications that can tell us what kind of new customer acquisition response rate we can expect?" Never mind that the question arises in a vacuum because there is no list, no offer and prior direct response testing by the advertiser.

Then when the advertiser does not get the answer he seeks, then he asks about the consultant's response projections. By this time we have an offer, a new predictive model based on customer names and we also know what medium we will use. In this case, we are testing direct mail.

But the advertiser still wants the easy out with a response projection in the absence of testing.

And so it goes round and round ad nauseam.

Folks, there is no simple answer to this question except to test in the real world. Why should you be any different from any other business that must spend testing money?

Here is the answer most any professional direct marketer will tell you in these circumstances.

"Dear Advertiser,

The way to look at your response rate is the way we approached it with you in the beginning. We base it on your required acquisition cost.

So we gave you a calculated break even response rate and NOT a response projection.

No one can predict response. That's why testing is such an important part of the direct marketing discipline.

That being said, we then must judge whether the proposed direct mail test has a chance of achieving the calculated response rate we based on your allowable cost per sale.

Response rates are impacted by the competition, the demand for the product, the advertiser's brand strength, the product quality, seasonality, the recipients' contract renewal dates and many other factors too numerous to list.

Any one of the factors can double or even triple your response or cause it to decrease by the same amount.

With all of these factors in play, how close can we come to an across the board break even response rate of .5% becomes the question?

Also, remember that certain segments of a file we created for you using a predictive analysis model could exceed a 1% response rate while other segments will likely come in at a much lower level.

So the test puts a toe in the water to see if we can identify niche markets where the response comes in at an acceptable rate.

In short, could this test identify segments that achieve a response rate of 1%? The answer is yes. Could our test average .2% rather than the .5% we used to budget the reward fulfillment expense, the answer is also yes.

Advertisers who have never done direct marketing testing should not expect an acquisition winner out of the box. The learning process is tedious and long term. The advertiser must strive for incremental improvement.

Sorry for the lengthy response, but your question has no answer since there is no such thing as an "Average Response Rate".

Posted on February 2, 2010 and filed under Direct Marketing Strategy.