Quick Answer Series: What About Direct-Mail Marketing?

I think direct-mail marketing for real estate agents is insane!  It’s probably the single dumbest idea agents waste their time and money on!  I’ll show you exactly why.

First, you need to understand that I’ve personally done direct-mail and I’ve wasted my own money, so please understand that in condemning  this idea as “insane”, I’m also condemning myself.  But when it became apparent that it was a bad idea, I quit doing it.  As Will Rogers so eloquently put it, “When you find yourself in a hole, stop digging.”

But I’ve seen agents continue to “invest” (read:”waste”) their hard-earned commission dollars on one direct-mail campaign after another direct-mail campaign.  Maybe it’s the narcissistic tendency in some agents to see their face and name in all the neighbors’ trash cans.  I don’t know.  But I do know it was Albert Einstein who first said, “Insanity is doing the same thing over and over again and expecting different results.”

But don’t take my rant as reason to stop throwing your money away!  Let’s look at the actual numbers.  First let’s look at the response rate for direct-mail campaigns.  The Direct Marketing Association “claims” to have analyzed 1,122 industry-specific campaigns and determined that the average response rate for direct-mail to be 2.61%.  (If you ask me, it sounds like one of those studies conducted by the tobacco industry that claimed smoking was safe, but then again, I’m probably cynical.)

Maybe their numbers are right.  Maybe when you send out 1,000 post cards, you get 26 leads, but for most of us who have tried direct-mail, the results haven’t even been close to that number.  My last campaign I sent out 1,500 pieces and got one call, and that was typical for me.  My farming list was 1,500 pieces, and the most I ever got was 3 calls.

But, as they say on TV, “past performance is no indication of future results.”  For the moment, let’s all imagine a “perfect” direct-mail world where that very rosy 2.61% response rate number is actually true.  Let’s use that number and do the math.  Let’s analyze the cost-per-lead as a result of that “perfect” direct-mail campaign.

OK.  First we’ll start with the mail piece itself.  The cheapest mail piece of all is a postcard, so let’s use that.  I know of offshore printers who can produce a very nice, glossy, full-color postcard for only about $0.15 each when buying in bulk.  The current postage rate for a small postcard is $0.28 per card.  Add to that the printing cost and you have a conservative hard cost of $0.50 per-piece.

Now let’s add your labor involved in doing the mailing.  I bought a specialized printer for doing postcards, I used my database and mail merged the addressing, and I rented a Pitney Bowes postage meter, so I had it down to a very precise mailing operation.  I doubt many agents go to that much trouble, so their time investment is probably much higher.

Nevertheless, we are talking about the “perfect” direct-mail campaign, so let’s use my time investment of 5-6 hours to prepare the copy, print and address the postcards, sort, stack and tray the mailing for the post office, and then deliver it to the post office for mailing.  Now suppose your time is as low as mine was.  Five hours at $50 per hour is another $250. (That’s what your time is worth if you want to make $100,000 this year.)

Now let’s add it all up:  A one-thousand piece mailing costs $500 in hard cost and $250 in time cost, for a total of $750.  Now, because this is the “perfect” direct-mail campaign, we will figure you got the magical 2.61% response rate, or 26 leads for that investment.  That gives you a cost-per-lead of $28.85 for the “perfect” direct-mail campaign.  Now let’s look at your budget per lead.

Nationally, the average sale price for residential real estate is $206,500.  The average commission side is 2.6%.  That means the average gross commission income (or GCI) is $5,369.  If you invest the recommended 10% of GCI for marketing, you can afford to spend $537 per transaction.  On average it takes 24 leads to produce a transaction so your budget per lead is $22.37.

That means that in our “perfect” direct-mail campaign, our cost-per-lead is almost 30% over budget.  The reality is that I don’t know of a single agent who has received even a 0.5% response rate.  If you have a typical response rate, your cost-per-lead is more like $150 or nearly 700% over budget!  In other words, it would probably be more effective to just write your name and phone number on $20 bills and hand them out than to do direct-mail.  And that’s my quick answer.

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Comments 2

  1. author Aaron Corson posted June 15th 2010. 1:42 pm Reply

    I understand your negative attitude towards direct mail, many real estate agents, including yourself have been burned by mailings that were likely not properly planned or executed.

    Your numbers regarding cost-per-lead seem to be accurate, but to look at any kind of marketing only as an expense is mistake. Marketing should be seen as an investment and as such, the ROI needs to be taken into account.

    If this same mailing you’re discussing that brings 26 leads and gets you one customer (based on the 1/24 conversion rate you mentioned) that’s worth $5,369, then the ROI of this mailing (that cost you $750) is over 700%.

    If you’re not seeing the kind of response that is considered average in your industry by the DMA, then the execution is most likely at fault… not the medium. Possibly the list is bad, the call-to-action is weak, the offer is not relevant, the creative/copy is poor, etc.

    I suggest an integrated strategy that includes direct mail, but also leverages email, websites, video, social media and more. Direct mail is just one tool of many that are at agents’ disposal. But when used properly as part of an integrated strategy, it is still a critical part of the marketing mix that will be able to reach many homeowners or buyers that the other mediums cannot.


    • author Matt Jones posted June 16th 2010. 12:25 pm Reply

      Hi Aaron,

      Thanks for reading and for your comment. I’m not so sure I have a negative attitude toward direct mail. I’m not emotional about it at all. It’s just a business decision for me. Let me explain:

      I have done direct mail in a very refined and very efficient way. I used call-capture and calls to action on the post card mailers and on the newsletters. My lists were every address in my geographic farm and my circle of influence, and the addresses were verified for accuracy. The marketing pieces at the time cost me about 12 cents for full color printed on both sides. The postage and printer costs brought my cost per item to about 3 pieces for a dollar. That is much cheaper than you could do it today.

      If you factor in labor (which you should) you have another $100. So I mailed 1500 pieces for a cost of $600. Using the DMA’s own overly optimistic numbers of 1.5% return (I have talked to hundreds of people who do direct mail and not a one has ever had a 1.5% return rate on a large mailing) then you have 23 leads for $600 or $26 per lead. The reality is that my best mailing I got 3 leads or a $200 cost per lead. If I can generate hundreds of leads for $3-5 per lead, why would I ever want to spend time and money on $200 leads or even those non-existent $26 leads.

      I’m sorry but you lost me on the ROI stuff. I’m not looking for an advertising idea to simply pay for itself. If it doesn’t pay for itself 10 times over, it is a loser in my book. Marketing should be 10% or less of GCI. If you got 26 leads, then your cost per lead would be $23.07 using the five year old prices I quoted before. But the reality is that I have never seen a 1500 piece mailing net 26 leads. That would be 1.7% yield which is higher than even the DMA’s rosy number.

      I realize that you are a bit biased, because your company helps agents do direct mail, and I’m not going to try to talk you out of it, but if anyone will take the time to run actual tests, they will come to the same conclusion I have come to. I just encourage my readers to test it for themselves. Thanks again for posting and feel free to reply. I’m very much in favor of healthy and spirited debate.

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