A look at response rates vs. cost per order or cost per lead

Compare response rates in direct marketing apple to appleIt is impossible to count the number of times I have overheard smart marketing agency type people or cool client side marketing people discuss response rates.

Or the number of times I have overheard email marketers talk about how cheap email marketing is compared to, for example, direct mail.

I always wonder why marketers don’t talk about what really matters: cost per order or cost per lead/inquiry.

While it is interesting to compare response rates email campaign to email campaign or direct mail to direct mail, it never was relevant comparing the response rates of an email marketing campaign to the response rates of a direct mail campaign.

What is relevant, however, is to calculate the cost of whatever it is that you want to achieve. As a professional marketer, you should take a much bigger interest in how much money each of the different media channels you are using return.

Below you’ll find a summary result of a recent survey from the DMA US.

The first one compares average response rates or conversion rates for a number of direct marketing instruments. From direct mail to paid search. Experienced marketers will quickly spot that you really cannot compare the response rate of a direct mail to the conversion rate of paid search marketing.

But that is anyhow what you see in this graph:

Which is the most effective marketing instrument?

See a larger version of this graph over on Pinterest

You will notice how telemarketing (12,95% or 8,21%) is still a highly effective method for getting a response from prospects and customers, whereas – unsurprisingly – the conversion of display ads (0,04%) or paid search (0,22%) is very low in comparison. But remember this comparison is somewhat irrelevant.

Do you remember the age-old golden rule of thumb for direct mail? It said that an average direct mail piece would generate a 2% response. When you look at the numbers of both types of direct mail, the average comes to a little over 2% – and that in spite of the fact that direct mail response rates have decreased by 25% over the past 9 years. There is a story in there, which I will cover in another blog post some day.

Here is what really matters: What is the actual cost per order or cost per lead
In the graph above you saw that telemarketing generated the best response. But now look what happened when the cost per order (CPO) or cost per lead (CPL) is measure; telemarketing is the most expensive channel along with catalogue.

Which is the most effective marketing instrument?

See a larger version of this graph on Pinterest

Cost per order or lead for acquisition campaigns were roughly equivalent for direct mail ($51.40), post card ($54.10), email ($55.24), and paid search ($52.58). But one should notice how email marketing in fact is the most expensive channel of the four, according to this study. You can see more information here.

Notice also how the (lead) acquisition cost of email marketing is at USD 55,24 while direct mail is at a cost of USD 51,40. This does not correlate with the US DMA’s survey that claims email marketing to be the highest performing marketing channel.

You can see more marketing related studies here

If you wan’t more stories like this one, here is what you can do;

> Get tips, insights and case studies on how to get into the Mind-Box of your audience and stay there!
> Find Michael Leander on Facebook and enjoy more frequent updates that might make you laugh once in a while
> Connect with Michael Leander on LinkedIn, on Twitter or – heck why not – on YouTube