Direct Mail - What does response rate mean?
Investor · Warner Robins, GA · Member since 2011 · 83 posts · 15 votes
Dont worry about response rate! At least as to how many calls you get. The only metric that matters is deals. Which is better?
Mail 10,000, 50 responses (.5%), 5 deals
Mail 10,000, 500 responses (5%), 1 deal
Its a no brainer. It is about the quality of the response. A buddy of mine had nearly 300 responses on 1000 postcards, but no deals, and the vast majority were angry "Take me off your list" calls.
I'm not sure how other people see it, but I believe the response rate is how many people respond vs how many people you reached out to. If you sent letters to 1000 people and only 20 respond, then you have a 2% response rate. Most will say 1-2% is the norm but there are so many variables it's hard to say what is "good" and what is "bad".
When you say 'total mailings', do you mean total people mailed to or total letters sent?
Dont worry about response rate! At least as to how many calls you get. The only metric that matters is deals. Which is better?
Mail 10,000, 50 responses (.5%), 5 deals
Mail 10,000, 500 responses (5%), 1 deal
Its a no brainer. It is about the quality of the response. A buddy of mine had nearly 300 responses on 1000 postcards, but no deals, and the vast majority were angry "Take me off your list" calls.
@Jose Castillo There are two response rates that I track: total responses, responses from owners looking to sell. I used try to track owners "seriously" looking to sell - but it became such a grey area the value became minimal. I think this is critical when judging online v. DMM: online leads are selling as they contact you about selling (inbound marketing); DMM leads may just want to chat, see who keeps sending mail to their house, or just want off your list (outbound marketing).
I haven't focused on deals/mailing. I've had strong ROI on total mailing costs/deal profits; around 4 dollars made for every 1 dollar spent (whether others consider that good, no idea).
I've had problems with the concept of deals/mailing. My deals come later. Only about 25% of my deals ever came with first mailing campaign (for me that means 4 to 6 months). Some of my bigger deals came on not third, not six, but the 9th mail piece. My latest deal I am very close on called on the 4th mailing, and we're verbally agreed on price 10-months from my mailing (of course, verbal agreements don't mean much).
So the concept to me of sending out 1,000 mailers and saying in 4 months I didn't net a deal isn't how I look at - I look at ROI/spend in the long term. I understand that can be tough if you don't have a long term plan.
Next reason you need to take a look at ROI/spend. I can tell you without a doubt my criteria for contracting a project is much tighter than my local competitor (my locale is super hot in South Florida). With a rising market the last 2-3 years, a great deal of speculation by competition. I suspect if we hit a correction - many people will get burned and my deal rates, response rates, ROI will all improve. Perhaps I'm too strict - but that's a topic for another day.
The point is this: are you doing a quick little 1k wholesale? Sure, I could probably do that every other week and make my deals per mailing look insane (but would I even enjoy that business model?). Are you looking for bigger rehab projects with bigger pay days? Your deal rate will go down and ROI could up. Financing situation - also impacts your ROI.
Another reason to look at ROI: why does it even matter what deal/mail piece is. In fact, I would go as far as to say if you are looking at that metric seriously, it could cloud good business decision. Scenario: you mail 1,000 yellow letters - cost you 1,250 dollars net one deal. You mail 2,500 postcards cost you 1,250 dollars - net one deal, and save a bunch of time with unmotivated sellers. What's better: you're .1 % deal rate, or .04% deal rate. For me, .04% is FAR BETTER.
Anyways, just my thoughts on how to evaluate your DMM.
It's also note an either or: you should try to track, response rate from sellers, total response rate, deals, ROI (but for me, only thing truly counts is ROI).
I mean I could go on all day about this: but the goal of any marketing is to learn each campaign. My first mailing campaign way back when used a terrible mail piece (literally when I hadn't done a single deal or mailed a single letter), then I upgraded to a better mail piece, then upgraded again to an even better one. It's always about testing, improving, That never ends. Whether it's online, direct-mail, or even time spent networking, have to be looking at ways to improve your process. That will dramatically increase your rates.
Rant over.
Loved your high quality post as it goes into the finer parts of wholesaling and metrics analysis. Could you please elaborate more on, "Scenario: you mail 1,000 yellow letters - cost you 1,250 dollars net one deal. You mail 2,500 postcards cost you 1,250 dollars - net one deal, and save a bunch of time with unmotivated sellers. What's better: you're .1 % deal rate, or .04% deal rate. For me, .04% is FAR BETTER."
How do you know that if you didn't use a yellow-letter for the 2500 postcards list that you response rate wouldn't go up significantly to justify the increased cost? How do you analyze this? You're the first person that I've seen that has said a smaller deal rate is better and it's good to hear your reasoning on this.
Also, how do you find your sweet spot for project size? You aren't pursuing small deals, but what's your cutoff and how did you determine it for yourself?
Also do you do your direct mail in house or use fulfillment?
@Ray Lai @Account Closed
Re: could you have used a yellow or postcard to increase your ROI: the issue is one of budgeting. When I'm planning marketing out, I have X amount for direct-mail and each sub-set, X amount for online (each sub-set). The idea of "send out 10,000 yellow letters" vs. "10,000 postcards" doesn't really exist for me in reality given I function on a fixed budget. As a core principle, I'd rather reach more people than less people. As a core principle, the hotter the lead, the more expensive the mail piece: so I send hand-written white envelope with business card to probates.
The question re: sweet spot for project size v. small deals - it's difficult to answer that question. If wer're talking about a 6-month rehab project, investing multiple hundred thousand dollars, I'm going to be hoping for a 20% cash on cash return / ROI, though depending on the challenges maybe less or maybe more. For a rehab project, in terms of the time investment, I'm looking for at least $15,000 profit. I mean, that's really the absolute minimum and that wouldn't be a huge win. If I'm just going to close and sell as-is, perhaps $5,000 to $10,000 minimum. Again, I can't give exact rules. If I have 5 deals going on at one point, I'm probably not looking for a 6th and I'd be scrambling to find capital to actually do the deal. If I have 0 to 2 active deals, I'd probably be looser in terms of taking on a less opportunity.
As for how did I determine it, all i can say is that investment is much more fulfilling when I am working on larger projects, closing on deals, you know, true "real estate investment" work.
Definitely fulfillment - anything that involves physical labor or administrative work I exclusively farm out in every situation.
Re: mail piece - the #1 rule is that you need to have whatever mail piece you are sending have the leads name and address on the front of card. That are more customization and specific info on the postcard, the better. My most recent postcard had the first name, last name, full address, parcel ID, neighborhood, all called out on the front of the postcard (though it was a custom developed list and concept that I'm 99.99% certain I'm one of few if not the only person marketing to it). Had a huge response rate. Anyway, that's the only thing I can say that you may not already be emphasizing.
@Ray Lai @Account Closed
Re: could you have used a yellow or postcard to increase your ROI: the issue is one of budgeting. When I'm planning marketing out, I have X amount for direct-mail and each sub-set, X amount for online (each sub-set). The idea of "send out 10,000 yellow letters" vs. "10,000 postcards" doesn't really exist for me in reality given I function on a fixed budget. As a core principle, I'd rather reach more people than less people. As a core principle, the hotter the lead, the more expensive the mail piece: so I send hand-written white envelope with business card to probates.
The question re: sweet spot for project size v. small deals - it's difficult to answer that question. If wer're talking about a 6-month rehab project, investing multiple hundred thousand dollars, I'm going to be hoping for a 20% cash on cash return / ROI, though depending on the challenges maybe less or maybe more. For a rehab project, in terms of the time investment, I'm looking for at least $15,000 profit. I mean, that's really the absolute minimum and that wouldn't be a huge win. If I'm just going to close and sell as-is, perhaps $5,000 to $10,000 minimum. Again, I can't give exact rules. If I have 5 deals going on at one point, I'm probably not looking for a 6th and I'd be scrambling to find capital to actually do the deal. If I have 0 to 2 active deals, I'd probably be looser in terms of taking on a less opportunity.
As for how did I determine it, all i can say is that investment is much more fulfilling when I am working on larger projects, closing on deals, you know, true "real estate investment" work.
Definitely fulfillment - anything that involves physical labor or administrative work I exclusively farm out in every situation.
Re: mail piece - the #1 rule is that you need to have whatever mail piece you are sending have the leads name and address on the front of card. That are more customization and specific info on the postcard, the better. My most recent postcard had the first name, last name, full address, parcel ID, neighborhood, all called out on the front of the postcard (though it was a custom developed list and concept that I'm 99.99% certain I'm one of few if not the only person marketing to it). Had a huge response rate. Anyway, that's the only thing I can say that you may not already be emphasizing.
Understand your core principal of investing more on the hotter the lead. Did you do split tests though? Some homeowner's prefer to get a professional letter from what they perceive as a large corporate entity, whereas some prefer the letters that look like you hand-wrote it (there are prints that look handwritten). Hand-written envelope takes time, are you tracking a higher response/conversion rate to justify it?
Also understand the core issue of budgeting, We spend 65 cents for yellow letters, and 40 cents on postcards which is 62.5% more per mailing. However, if the yellow-letters have more than double the response rates / conversion, we consider that justified. We look at the total responses / conversions per area for the campaigns.
Makes sense that you are flexible and adjust based on project pipeline. Thanks for elaborating on how you adjust.
Yeah, true work is better because you're adding value and you can see it physically :)
Nice that you're building a scalable system. I'm guessing you farm out the 'handwritten' white envelopes with your business card too then.
Never heard of parcel ID also being on the postcard! That's a cool idea. Did you track what your response/conversion rates were before and after you did it? The more customization and specific makes intuitive sense, could you give a ballpark of what you mean by "huge response rate"
Fun chatting with you :)
White letters go to probate - list is normally around 500. I don't split test it. I don't consider it 500 letters a month a legit sample size.
I don't split test yellow letters; though I know my old yellow letters produced a 1 to 2% response rate. My quote around that time, was going to be 85 cents for the version of mass yellow letter I wished to run - so that would have reduced my mailing list by about 30-45% vs. postcards. I do split test my postcards.
My perspective on the yellow letters is: (1) they are not branded, and I'm building a brand in my local market; (2) I don't want to use a "mind game", for lack of a better term, to make someone call - where I have no reason besides some highly general list to believe they wish to sell; (3) everything - all marketing - ties into my global online marketing - so sending out materials in the real world that does not in detail reflect my website, colors, branding, company name doesn't jive with my business model (even my white letter, comes with my brand business card and House Heroes customized letterhead). It's not this letter or that letter, or adwords, or Facebook: it's my marketing model.
The campaign I was referring to was a postcard that got 1.5% (though it had a few more hits this week, so not sure exactly where it is now). This was a unique mailing list though - to which I believe I'm either the only (or in the very small minority) of investors marketing to.
As a general matter, though, I've been spending the vast majority of my time developing unique lists and marketing systems to properties and opportunity that other wholesalers/investors cannot recognize or cannot execute on. I certainly feel, that's where the gold is. Marketing in normal channels has its place, of course.