What’s going to be my direct mail response rate?

I’ve been asked this a lot in the past few months. I think everyone’s expectation that the response will be low, but just how low? And is it acceptable to keep on mailing despite a slow down?

Let’s answer the response rate question. Well, it’s low. Across the entire financial service sector, acquisition direct mailing campaigns from April to May 2020 has been around 20 basis points, that’s 0.2% or 2 out of a thousand people respond to a mailing offer.

And there is more…

The other silent killer is your conversion rate. It’s not you, it’s the consumer. If you are getting a 10 to 15% conversion rate, you are doing pretty good. This means about 2 people in every 10,000 mailers will take an offer from you.

That’s a grim number, and we haven’t even talked about credit risk or default risk of the ones you do end up converting into a loan.

Here are some of the theories as to why.

Other than the obvious, COVID19 and the shelter and stay orders have not been kind to us. Every sector of the economy has ground to a halt. 30 million-plus Americans have lost their jobs and they are afraid of what’s to come.

Our unemployment rate is, some may argue, over 20%. Meaning out of 150 million able bodies American adults, 30 million (150 million x 20%) are out of a job.

Consumer spending behavior has greatly shifted as well. People are only buying what’s essential. Let’s face it, even if people with disposable income want to spend their money, there ain’t any places for you to spend it at.

Are the jobs coming back?

Let’s talk about the 30 million Americans without a job. They mostly worked in retail. With giant retailers declaring bankruptcy week after week, some economists are saying that maybe only about 70% of those who lost their job has a job to come back to.

But Americans have faced similar difficulties before. From the Dot Com bust to 9/11 and to the great recession over a decade ago. We will bounce back but we will face a new reality and a new challenge.

Should I keep on mailing?

Well, I think everyone’s situation is different. If you’ve built up a good customer base, you should keep on advertise to their customer base. They need you more than ever, don’t forget them and definitely don’t leave them behind/

If you are absolutely needing to keep your portfolio above the water and continue to acquire customers, perhaps mail to the top (or the most responsive) 20-30% of your usual target audience.

How do I sharpen my pencil and get the right message across?

If you run your marketing with some science behind it (e.g. a statistical model than rank orders the most responsive to the leave responsive), then you should select the top 20-30% of the most responsive group. They may still be needing your product and services.

If you don’t have a custom model that specifically rank orders your audience, then try to put your population in a credit score and income bands/ranges. This might help you to target the right audience, or at least help you to select the folks you want to go after.

For example, if you are targeting subprime auto borrowers, you might select those with a lower FICO score and a lower income band (or slightly higher Debt to Income ratio).

When can we pick this up again?

Like with any other natural disaster, this won’t last forever. Eventually, American consumers will get their jobs back, our government will introduce measures to help entrepreneurs to create businesses and therefore more jobs.

Consumers will spend again and therefore borrow again. But when?

Well, most of the financial services companies that I’ve been talking to are preparing for end of June and starting of July as their acquisition starting point. That’s means, you’ve got to start planning now.

There are actually incentives!?

Credit bureaus, which should be your traditional sources of lists are offering new incentives. If you are to order an interim file form them today to prepare for the next direct mail campaign and should things turn for the worst, they are taking away any late or cancellation fees. Which makes it virtually risk-free.

Typically, it takes about 40 days for a pre-screen direct mail to get off the ground.

We are now venturing into mid-May. 40 days from now will put you right into late June. You don’t want to start planning your next campaign in June, you might miss the lushest lending market in recent history. Start planning now.

Before you go…

Keep an eye on your underwriting. Subprime folks, remember, the “bads” are always going be here, only the good people has left the stadium. For my prime folks, watch your pre-payment speed, the well-to-do consumer are taking their “forced” savings and paying off their financial obligations.

Gosh, what a nightmare we are living in.

Lastly, call somebody.

We are here to help. Marketing, underwriting or otherwise. Give us a shout.

Tim