Data Driven: Print Dollars
• Response Rate and Average Units per Order: RR% is another method for direct marketers to rapidly correct a P&L imbalance. It is measured as the number of total orders received divided by the number of total mailed pieces. Current clients will traditionally generate a much higher RR% than prospective clients or former clients. Average units per order is calculated by dividing units sold by total orders.
• Cost of Goods: Given the importance of margins to a direct marketing business, it is not surprising to find numerous subcategories listed in the P&L. As a key driver of success, it is critical to monitor various elements. The elements within this category of the P&L include product costs, freight to your warehouse, cost of markdowns and leftover product at the end of a season.
• Fulfillment Costs: Fulfillment costs include everything associated with receiving a client’s orders, inquiries and catalog/printed materials requests, as well the costs associated with shipping their orders. This includes applicable costs for order entry, systems, warehousing, shipping, returns and customer service.
• Advertising Costs: This is often the largest cost center for a print direct marketing campaign. This portion of the P&L captures many of the fixed and variable costs, including design, photography, paper, printing, outside list rentals and postage.
Fixed creative costs can significantly impact campaigns with smaller circulations. If the fixed creative costs are $46,800, then with a total circulation plan of 250,000, that comes to $187/M or $0.19 per printed piece. If, however, the total circulation plan was only 100,000, then the fixed creative costs would jump to $468/M or $0.47 per printed piece.
Another factor is response rate. The higher the response, the lower advertising is as a percent of net sales. For example, consider if the combined printing, paper and postage costs were $84,240. With a 2 percent response rate and an actual average order value of $104, that comes to $520,000 in gross sales. Print/postage/paper therefore represents 17 percent of net sales. If, however, the campaign is primarily client acquisition-driven, then the RR% may be just 0.9 percent, with an AOV of $80. That translates to 2,250 orders and $180,000 in gross sales. Assuming a consistent combined returns/cancels percentage of 6.2 percent of gross sales, we get net sales of $168,840. That same print/postage/paper cost of $84,240 is now 50 percent of net sales!