direct mail, Economics

All That Glitters

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The solid gold gift pack. Gotta open it.

Our mailbox opened this morning to present a gorgeous golden Flat from Veterans of Foreign Wars.

It is highly improbable that the recipient of this gilded kit would toss it in the bin without at least checking to see if there was a $10 dollar bill waiting inside, too.

Just might have been too, considering the total payload we discovered:
-12 Christmas cards and envelopes

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12 Christmas cards and envelopes, a big offering.

-1 gift bag

-1 pen

-1 calendar card

-1 set of gift & address labels

Of course, there was also a letter/donor form and BRE.

But two unusual items cropped up.

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The gift bag, big enough for a ham sandwich.

First, the headline alerted us: WOUNDED VETERANS ARE IN CRISIS.

If you are at all disposed to the plight of these warriors, as countless Americans are, you are going to open this labeled treasure chest to see what the crisis is.   Foreclosure on the home?   Withdrawal of benefits?   Family disintegration?   What is the crisis?

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Crisis: a powerful set up.

Inside, the letter launches in to a completely different train of thought: “When we began sending out these free special edition Christmas cards and other gifts, people said we were crazy.”  Only three paragraphs later do they mention the main focus of their cause: the wounded Veteran.

Version 2

The non sequitur: handwringing debate about cards.

While this may seem nitpicking, the golden rule of good headlining is to pay it off.   VFW brings the reader to the edge of their seat, and then chats away on the frivolity of costly free gifts.  Crisis takes a back seat.

The second wrinkle is more about economics, and a good lesson is taught here.  This 6.8-ounce kit probably cost $2-$4 dollars each, all in.   Conventional marketers would roll up their eyes, cross themselves and close the garage door before spending that kind of money, especially when the response might not break 5%.

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Labels and stickers, a fitting complement.

But what if it does?   The real question is, what’s the average gift, and how long before it pays itself off?

So assume for a moment this scenario:

Mailed 10,000 at a cost of $40,000.  700 donors, at a cost of $57.14 each. Response, 7%.  $17,500 in gifts.  Average gift, $25.

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Cello-wrapped pen.. not since Time magazine!

What does VFW have? 700 new donors at a net cost of $32.14 each.   What are the odds that over the next five years, the group will turn in another $100,000 through renewal mailings, bequests and planned giving?   Pretty good, actually.

Version 2

This compliant disclosure gives pause to the reader.

It’s all speculation, of course.   For some background on VFW’s fundraising success, check their website for its latest financials.   Total gifts, $66.8 million, fundraising expenses, $25.6 million.  Roughly 2.6/1.  By comparison, its major competitors turn in gift/fundraising ratios of 3:1 up to 7:1.

The challenge is knowing in advance what the numbers can, and need to be.  Here is a formula worth knowing–witnessed by a fly on the wall of VFW, where for a fictional moment, you are now working.

Budgeted Cost per Piece

Your boss went sideways over the cost of the Gold Lame’ package.  Piqued, she said the gross cost per response can’t exceed $32.14.  You blurt out,

“But that’s the net cost on our Vanilla kit.   Gimme a break.”

“Give you a break? I have to explain this gold cadillac to the board.   If it doesn’t beat Vanilla, I will be back in community service, and you will be on the phones while you are licking envelopes.   Got it?”

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Gifts up to $500. If you don’t ask…

So you have a ceiling: the cost per response must not exceed $32.14.   Historically, you have generated a 3% response on the Vanilla conventional mailing format.   The all-in cost of the Gold Lame’ must not exceed $32.14 times 3% = $0.964 each.

Impossible.  The vendor stares through you with crocodile eyes.  Three bucks without postage, he grins.

But you feel strongly about Gold Lame’.  Your all-in piece cost totals $3.75.  Divided by the boss’s ultimatum, $32.14, you need 11.67% response.   Phew.

At this point, you wake from this disturbing nightmare.   Will Gold Lame’ quadruple Vanilla response?   We may not know, but at least you know the formula to weigh the risk.

Remember: ($ piece cost) / ($ response cost)  =  % response

Now, back to our piece.

  1.  Fix the headline to set up the letter, or change the letter to pay off the headline.
  2. A bold choice of cards: an unabashedly Christmas theme.  Just make sure your list is of that persuasion.
  3. The donor form offers 8 gift choices, from $10 – $500.   Good!
  4. Lastly, the prepaid BRE is worth it.   Whole campaigns can falter for want of a postage stamp.
  5. Mail it.   Whatever the response, whatever the gift, if you don’t test, you will never know.

Lastly, find a good quote to share with your boss, something like Teddy Roosevelt’s, “better to have failed while daring greatly than to live with those cold and timid souls who have neither known victory nor defeat.”

A little wordy, but it may work.

 

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direct mail, Marketing

DAV Makes The Numbers

I just received a mailing from the Disabled American Veterans, whose organization I frequently support.

DAV's Mailing to Past Donors

DAV’s Mailing to Past Donors

The mailing piece is illustrative of the investment DAV makes to raise money for their many services provided to America’s injured war vets.  If you have never received a DAV piece, you have not seen the abundance of gift stuff frequently mailed to potential as well as loyal donors: greeting card sets, bookmarks, calendars, and beautifully crafted address labels.   There’s nothing “junky” about a DAV appeal letter.

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46 cents postage, courtesy of DAV

What struck me about this recent letter was the inclusion of a reply envelope which was already paid with 46-cents of stamps.

Claiming austerity, most fundraisers ask you to provide your own postage.  Instead, DAV pays the bill.   Does it seem contradictory to you?   Or does it make perfect sense?   My guess is that providing the postage is a tactic to increase response, not necessarily the gift amount.   In other words, if a donor normally gives $10, the prepaid return postage tactic doesn’t get more dollars per donor, but it gets more donors: those folks who won’t allow 46 cents to go to waste.  And it’s unlikely many stamps get steamed off.

But here is where it gets interesting: what direct mail manager is willing to put their job on the line by suggesting they add 46 cents to the cost of every fundraising letter they send out the door.   “Are you nuts, or just plain stupid??” suggests their boss, popping TUMS once a minute.

“Riskophilic” may be the proper term.    Daring.  Or canny.  A little bit of math may reveal the truth.

You can look at DAV’s 2012 annual report which shows some numbers worth bragging about.  They earned $97 million in direct mail donations at a cost of $32 million.   Basically, for every dollar spent in direct mail they received 3 dollars in return.   The 3:1 ratio is pretty consistent every year, and by the way, their fundraising cost is only 19% of all their expenses, which is quite acceptable.

Anyway.  The letter I received had 5 Christmas cards and envelopes, a disclosure sheet, a letter, outer envelope and reply envelope.   With outgoing postage, I figure the kit was worth 75 cents in the mail.  $750/m.    Add an additional 46 cents, and you are at $1.21 for one piece of mail.   Multiply that by 100,000 and you have college tuition at Northwestern.

However: increase your cost by 60% and you need to increase revenues by 60%, to keep that 3:1 ratio.   Sounds challenging?   Just about miraculous is how I would define it.   You don’t get swings like that.  But the beauty of direct mail is that you can test it both ways, with and without the extra stamps.   Clearly, the test proved  positive, in a good way, so the DAV is keeping the USPS afloat while making money for its vets.

There’s more at work though.   That crazy manager also has another equation in his or her head.   It answers the question: how much revenue with every piece mailed?   If each piece costs $1.21, then each piece must earn $3.63 in donations.  3:1, right?    But only if DAV gets 100% of the people to respond.   What if only 15% of the people respond?   Then a $3.63 donation won’t cover the ratio.     Now the gift changes, and here’s the revealing equation: $3.63 divided by 15% response.   $3.63/15% = $24.20.   The average donation must be $24.20.

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The “ask” starts at $7.00.

Hmmm.  Look at the donation form on the letter.   DAV is asking for “$7… $10… $15…  or more”.  Whoa!   What if everyone just gives $7 dollars?    Well, again, this is what gets tested, and DAV is pretty confident that a $7 gift is acceptable.   My hunch is that if each gift is at least $7.00, DAV just about breaks even.   How’s that figured? Well, divide the piece cost by 15% response.   $1.21/15% = $8.07 average gift required to break even.  $7.00 is close.

Fortunately, my bet is that people give a lot more.   Without having any direct knowledge of DAV’s results, I can only guess that the scenario is something like what I have described.    And if it is anywhere close, DAV has some very good writers, and some very generous donors.    And some very deserving vets.

A salute to all of them!

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