Warm CPAs might be higher than cold, but there’s nothing expensive about customer acquisition

Is it better to spend on customer acquisition or retention? Ian Gibbs explains why new JICMAIL data can better enable a “both-ism” approach.

“Acquiring a new customer is five times more expensive than retaining an old one!” (Source: Every customer loyalty/UX/martech presentation in the last 20 years.)

It’s a marketing trope that has certainly done the rounds over the years, and one that’s been debunked on several occasions. Critics point to the now well-out-of-date research on which the finding originates, along with methodological issues that fail to acknowledge customer lifetime value. But the stick continues to be used to unfairly beat acquisition-based marketing.

If you’re a measurement practitioner attempting to quantify the full-funnel effects of retention- vs. acquisition-based strategies, then merely pigeon-holing the art of growing the customer base as an ‘expensive’ option does a disservice to the world of acquisition-based marketing – something that would no doubt have advocates of Byron Sharp’s How Brands Grow frothing at the mouth. Brands which fail to grow their customer base have very little long-term growth potential. As an opportunity cost couched in these terms, suddenly acquisition marketing doesn’t look so expensive.

That said, there is a matter of semantics at play here. If we are to get very literal about the definition of ‘expensive’ and think about it purely in terms of an immediate cost-per-acquisition (CPA) metric – i.e. the campaign spend (broadly media and creative costs) required to acquire a conversion – then new data from JICMAIL (the Joint Industry Currency for Mail) shows that the old trope largely holds up. In fact, data from our inaugural Response Rate Tracker tells us that CPAs from cold direct mail campaigns tasked with shifting the dial on sales among non-customers are typically eight times higher than warm direct mailings targeting existing customers.

In addition, the Response Rate Tracker (which is based on performance data from over one thousand anonymised campaigns submitted to JICMAIL by six key industry players) tells us that the average response rate for a warm mailing is 10.9% vs. 1% for a cold mailing. ROI figures come in at 13.5 and 4.4 respectively.

The intention behind publishing these benchmarks is not to knock acquisition-based marketing, but rather to provide planners and measurement practitioners with credible campaign-centric normative data from which campaign KPIs can be set and performance measurement can be contextualised. These benchmarks are designed as a starting point when setting campaign targets – a baseline which should be iterated upon using a myriad of unique campaign, brand, audience and market information.

In a world in which marketers should become increasingly comfortable with a ‘both-ism’ approach (as Mark Ritson calls it) to marketing strategy, the Response Rate Tracker is designed to bring greater rigour to both acquisition- and retention-based strategies when planning ad mail campaigns. The fact that warm direct mail response rates are eleven times higher than cold mailings points to the importance of using first-party data as effectively as possible when third-party cookie targeting techniques are on their way out. A cold response rate of 1% on the other hand is a broadly favourable figure when compared to response rate benchmarks in the digital space which are often sub-1%.

The Response Rate Tracker has also proved to be a useful validator of JICMAIL’s core panel-based mail metrics, from which its quarterly gold-standard mail campaign planning data is derived. The average piece of direct mail is revealed to have a 5.1% response rate across warm and cold combined – a number which closely aligned to the 5.6% self-reported by JICMAIL panellists and adding credibility to both data sources.

This first wave of Response Rate Tracker data is heavily retail-sector focused – something that JICMAIL is hoping to address in the future with a broader pool of contributors providing data across other sectors and mail types (for example Door Drops and Partially Addressed Mail). If you’d like to join our current pool of contributors (Join The Dots, Epsilon Abacus, Sagacity, DBS Data, The Letterbox Consultancy and Ginger Black Analytics) then get in touch with JICMAIL today!