Creative Corner- Mail-order Math (810 words)
($9.50) = $2.85.
For our purposes we will treat that as a cost.
Then, take your gross revenue per order and subtract the cost per order and the profit:
$54.90 - ($23.22 + $2.85) = $28.83.
What this means…
In this example, our breakeven allowable is $31.68 and our marketing allowable is $28.83. What does this tell us?
For one thing, we can figure out what kind of response we need. If we have a marketing budget of $100,000 we would need:
$100,000 = 3,157 orders to breakeven; $31.68
$100,000 = 3,469 orders to hit our profit target; $28.83
If you are mailing and history tells you to expect a 2-percent response rate, then you must mail:
3,157 x 100= 157,850 pieces.
Your cost per thousand (CPM): $100,000 divided by 157.85 = $633 per thousand, which is achievable.
3,469 x 100= 173,450 pieces
Your cost per thousand (CPM): $100,000 divided by 173,45.85 = $576 per thousand, still achievable.
So, for this example, we know that to make a profit we'll need to get 3,469 orders. To get this number of orders, assuming a 2-percent response rate, we'll need to send 173,450 pieces. To stay within our budget of $100,000 we'll need to develop and send this direct mail program at a cost of less than $576 per thousand, although you can amortize development and other pipeline costs through a few mailings.
Only once we know the allowable can we develop creative strategies for a direct mail program.
The formula works in every medium. Of course, this is a quick-and-dirty analysis; to do it thoroughly is more complicated. You'll want to factor in multiple sales, repeat orders, referral orders, list rental, database costs, etc. But, doing this one simple exercise first will let you know what ballpark you're in.