Do response rates really mean very much?

At the risk of repeating some of the great insights on the relevancy of response rates provided in two consecutive issues of NL/NL (2/29/04 and 3/16/04), I'd like to add a few observations of my own.

When he hears newsletter marketers bragging about response rates, NEPA Hall of Fame member Al Goodloe remarks, "I suspect they aren't doing the complete marketing job. They should be constantly testing marginal lists to see if they can be made to pay off, a process that invariably does somewhat depress overall response rates."

If I didn't understand the essential meaninglessness of raw response data before, I certainly learned it during the four years I was with UCG, one of the larger, more successful multi-title newsletter publishers.

At UCG they have developed something of a stable of promotional package formats: the yearend predictions, the "red envelope quiz," the "Words of Wood" official memo look-alike, and so forth.

And, of course, these packages cost about the same to produce and mail regardless of which newsletter title was involved.

But UCG had titles ranging in price from about $99 to $397 and up, and an identical response rate would mean very different things to different UCG publishers.

For my direct marketing title, a huge mailing was 30,000 pieces. That would cost from $15,000 to $18,000 depending on whether I added a lift letter or testimonial buckslip. The news-letter cost $242.

If the offer was a $197 introductory discount, I needed 92 paid orders to recoup the cost in the mail. If the offer was "This newsletter costs $242 and is worth every dime," the breakeven number came down to 75.

One percent response rate = $4.03 for every $1.00 spent

If I had gotten a paid one-percent return, 300 orders, that would have brought $4.03 in income for every dollar spent. If this had happened, UCG senior partners Bruce Levenson and Ed Peskowitz would have carried me around the office on their shoulders. But that didn't happen.

When you mail the same package for a $397 offer, the break-even point comes at 46 orders. In other words, any response rate higher than 0.015 percent is immediately profitable. For my $242 title, one quarter of one percent was the break-even mark.

And belaboring the point, even at a $99 price, you'd break even at about 0.06 percent.

And this isn't even dipping our toe into the pool of consumer newsletter marketing, where the prices can be more like $57 or $37--and promotional packages with 16-page letters, four-color magalogs, obviously being more expensive.

Mailing into these markets can draw 10 or 20 times the response of higher-ticket business-to-business titles.

All of which is intended to illustrate that asking someone in newsletter marketing, "What is your response rate?" is likely to bring an answer about as useful as the old vaudeville line, "How is your wife?"

("Compared to what?")

Renewal rates

Useful life = 1.0

1.0 Renewal rate

So, for a newsletter with an overall renewal rate of 75 percent, the anticipated life of a new subscriber is four years.

If the price is $242, you could fairly anticipate $968 revenues for each new order--and that's leaving out ancillary revenues from list rentals, special report sales, conference registrations, and so on.

In theory, you could certainly spend more than $242 for a new order but, in the real world, few publishers are willing to acquire new subs at a loss on a regular or planned basis.

Taking that longer view of a new subscriber--factoring in your renewal rates and ancillary sales--makes more sense that focusing on response rates.

Award-winning copywriter George Duncan put it this way:

"Keep in mind that direct mail is a database business. Your purpose is to build a list of happy customers to whom you can sell, cross-sell, or up-sell related products, upgrades, whatever. Marketers are often willing to give a little on the front end in order to build a database for back end profits. 'Direct mail is a process of gathering information, paid for by sales.' It doesn't say 'fully' paid for, and your job is to be sure the information you buy is worth the cost."