Cost Analysis of Demographic Mailing on the County Level

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Your newest client is a rug cleaning company, starting a service in the Suffolk County, NY, area in a month. Though its average service ticket is only $200, through years of experience in the industry in metro New York, your client knows that only people with homes valued at more than $350,000 will pay to have their rugs cleaned on a semi-regular basis.


He has come to you in need of a direct mail campaign. He says what all your clients say: "I want to minimize cost and maximize response rate." He adds the parameter, "I'd like to spend under $5,000 on this initial mailing." Where do you start?


Here we will show a cost analysis of four possible solutions to this problem:


· A blanket resident occupant (res occ) mailing for the whole county.


· A targeted list-based mailing.


· A combined demographic analysis and carrier route level saturation mailing.


· A partial-county targeted list-based mailing.


Your client asks you to contact his list provider and find out how many residents Suffolk County has and what the entire resident occupant list for Suffolk would cost. His list provider tells you: 546,114 addresses, for a total cost to your client of $8,191.72.


The list alone costs more than your client wants to spend, but for your own information you do some quick math. You know that by saturating every carrier route in the county your client is eligible for significant bulk mail postal discount rates. Since your client can drop off the mail at the county's destination sectional center facility, he will have to pay only $0.126 per piece for postage compared with the regular rate of $0.37 for First-Class mail.


Based on his specs and previous similar mailings you've conducted, you know the cost per piece for the envelope and 8 1/2 x 11 insert will cost $0.31. So if he mailed to every resident occupant in Suffolk County, the total costs per address would be:


Blanket Res Occ Whole County Mailing -- Per Piece Costs


Production cost per piece: $0.31


Cleaning and addressing: $0.04


List rental per address: $0.015


Postage (bulk rate/DSF dropoff): $0.126


Total: $0.491


At a quantity of 546,111, the total cost of the mailing would be $268,140.56!


OK, so that is completely out of the budget range, as you knew it would be. Now what?


What if you have your client mail only to individual homeowners in houses valued over $350,000, since he knows this is his target market? The number of pieces being sent would drop drastically, to 37,021 to be exact. And the cost of list acquisition would drop as well, to a mere $1,924. There would be one offsetting jump in cost, however. Because he is no longer conducting a saturation mailing, the postage cost per piece would skyrocket to First-Class rates of $0.37 each. So total cost per piece would be:


Entire Target Universe List Based Mailing -- Per Piece Costs


Production cost per piece: $0.31


Cleaning and addressing: $0.04


List rental per name: $0.052


Postage (bulk rate/DSF dropoff): $0.37


Total: $0.772


Though cost per piece would be higher, overall this method sounds slightly more reasonable, at a total cost of (37,021 * $0.772) = $28,580. Better, but still a lot of money compared with what your client wants to spend, under $5,000.


You think, "If he could target only the households in his economic range, but still receive saturation mailing postage rates, he could get almost two letters sent for the price of one." So you try another route: demographic analysis by carrier route.


Your company's mapping service bureau tells you it's easy to identify carrier routes consisting almost entirely of households in a certain demographic. Because you want to target only people with houses worth $350,000 or above, your mapping rep suggests you set your median value higher than $350,000 when you choose which carrier routes to mail to.


You decide together that a median home value of $425,000+ will let you hit the carrier routes with the highest proportion of your client's target customer and avoid mailing to those with home values under $350,000. Your mapping service bureau then generates a list of all of these carrier routes in Suffolk County.


For each carrier route, it also provides the resident occupant count so you know how many mailers your client will need to saturate the route. The total cost for this information is $255.


As you look at the list you see that 37 carrier routes have a median home value over $425,000, for a total of 9,154 residents. This is a pretty small number given that there are 1,066 carrier routes in Suffolk County. You check with the list company, and the list cost to your client would be only $150. Based on this, the cost per piece for mailing by this method would be:


Carrier Route Demographic Whole County Mailing Per Piece Costs


Production cost per piece: $0.31


Cleaning and addressing: $0.04


List rental per name: $0.016


Mapping cost per name: $0.028


Postage (bulk rate/DSF dropoff): $0.126


Total: $0.520


Based on these calculations, the total for mailing to targeted carrier routes would be about $4,762. Great! This is right below the cutoff your client set.


Always looking at things from every angle, you think, "I could just buy a resident list of 9,154 known to own homes valued at more than $350,000 in Suffolk County and mail to each one -- this would probably generate higher returns (since they are definitely in my target market) and not be too much more expensive than mailing by carrier route."


You contact the list provider once more, who tells you the cost for this list would be $476, or a cost per name of $.052, the same as if you were mailing to the entire target universe times the number of records selected, 9,154. Based on this, you calculate how much it will be to mail to this select list. Since you can't qualify for carrier route discounts, your base per piece cost is:


Partial Target Universe List Based Mailing -- Per Piece Costs


Production cost per piece: $0.31


Cleaning and addressing: $0.04


List rental per name: $0.052


Postage (bulk rate/DSF dropoff): $0.37


Total: $0.772


Therefore, $0.772 x 9,154 = $7,067. That's more than $2,000 extra to mail to the same number of people than it was to mail by carrier route. But maybe you can convince your client it is worth it, since it isn't that far out of range. You look at some response rate projections and estimated ROI figures for mailing by carrier routes selected by demographics vs. mailing by a targeted list.


You talk again with your mapping service bureau, seeking a more concrete sense of how many residents in the carrier routes it gave you actually live in homes worth more than $350,000. It estimates that at least 80 percent of the addresses are part of the target universe. Based on this you calculate that, though your client is mailing 9,154 offers in the carrier route-based mailing, only 7,323 are in your client's target universe. Therefore, expected response rates and ROI should be calculated based on this lower number.


For the list-based mailing, by definition each recipient is in your client's target universe, so you will calculate ROI on the full 9,154.


One more assumption to go. Though you often have response rates as high as 6 percent, you decide to be conservative and estimate a 2 percent response rate across the board. With that you are ready to calculate your estimated ROI:


ROI: Partial List Based vs. Carrier Route Demographic Whole County Mailing


List based


Total number of mailers sent: 9,154


Number sent to target universe: 9,154


Expected response rate: 2%


Expected responses: 183


Return on ad ($200 for a rug cleaning * # responders): $36,616


Cost of mailing: $7,067


ROI: (return on ad/# mailers sent to target universe): 5.18


ROI: Partial List Based vs. Carrier Route Demographic Whole County Mailing


Carrier route based


Total number of mailers sent: 9,154


Number sent to target universe: 7,323


Expected response rate: 2%


Expected responses: 146


Return on ad ($200 for a rug cleaning * # responders): $29,292


Cost of mailing: $4,762


ROI: (return on ad/# mailers sent to target universe): 6.15


So not only is the carrier route based approach in your client's price range, but the ROI is over a full point higher. Your decision is made!


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