In any kind of direct marketing campaign there are several important numbers that are essentials to the success of your campaign. The numbers that we will discuss can easily be applied to internet marketing but in an attempt to keep things simple we will focus on direct mail for the moment.

The first of these numbers is the cost per-lead, this cost relates to the cost of obtaining a prequalified physical address. Here we use the term “prequalified” to simply mean, someone who is interested in your niche.

Once you know what your cost per-lead is, it would be valuable to know how much a single lead is worth to you in terms of dollars and cents. Determining your value per-lead lets you know for certain how much you can spend on each lead and continue to make a profit. Here is where things get a little bit tricky, a lead you obtain today could in theory pay out: a month from now, three months from now, or never.

As you become more experienced with direct marketing you can get fancy with calculating your value per-lead. As you become more sophisticated you can factor in the percentage of leads that will purchase from you in the first month, the second month, the third month, and so on. This kind of “discounting the future” can get very complicated and is probably overkill for those just starting out.

If you are just starting out I recommend that you calculate your value per-lead in terms of the percentage of leads that will purchase your next offering. This percentage brings us to our third useful number which is the conversion rate. Your conversion rate is simply the percentage of leads that will purchase a particular offering.

If you send out a mailing to 100 leads and 5 of those leads purchase your offering then you know that your conversion rate is 5%. If you have different methods of obtaining leads I would recommend that you keep each group of leads separate from other leads obtained using a different method. This recommendation holds true even if you only have a single niche. Leads obtained from method A may well convert better than leads obtained from method B even with the same mailing.

It makes sense to track conversion rate not only for different mailings (sales letters) but also for each group of leads. Please note that you cannot calculate value per-lead without first knowing your conversion rate. If a single sale makes you $100 dollars and your conversion rate is 5% then your value per lead is $5. This means that if your spending $6 to acquire one new lead you are in the red, however if you are only spending $4 you are in the black.

We have used the term purchase over and over again in this article for simplicity. In reality there are other ways to monetize leads besides purchases. More on that later, for now hopefully we succeeded at keeping things simple.