The Book Publishing Game
The answer to Paul Wilbur's questions requires a quick, down-'n'-dirty look at the economics of advertising and promotion--not just for books but for any business.
The Absolute Necessity for Repeat Customers
When I was running Target Marketing magazine, I would get at least two phone calls a week from folks who had a product that they wanted to sell by direct mail. What advice did I have?
"What else have you got," I would ask.
"What do you mean?"
"What other products do you have to sell?"
"I don't have any other products."
"How much does your product sell for?"
"How much does it cost you?"
"You don't have a direct mail business."
"What do you mean?"
I would then take the fledgling entrepreneur through the arithmetic. Let's assume that the price will be $9.95 plus shipping and that shipping is a breakeven proposition—a wash.
Gross profit is $5 ($9.95 revenue minus $4.95 cost of goods sold).
A direct mail package costs roughly 50 cents—printing, postage, lists and lettershop. At $500/M, breakeven response is 10 percent. (100 orders X $5 pays for the $500/M mailing cost.)
A 10 percent response is absolutely impossible.
In the old days of direct mail, the benchmark response was 2 percent or 20 orders per thousand. The reason for that ballpark number was that the typical direct mail test cell was 5,000. A 2 percent response to a mailing of 5,000 will bring in 100 customers—enough to be statistically valid in terms of tracking their future performance.
In most cases, marketers actually lose money acquiring new customers but will make it up later through additional sales. Magazines, catalogs, continuity offers, financial services companies—all lose money in the acquisition process and must wait for months—sometimes years—to start making money.
Going back to the person on the phone who wanted to sell a $9.95 product by mail, a 2 percent response would bring in 20 orders per thousand. With a $5 net revenue, the total would be $100 net revenue vs. a cost of $500/M or a loss of $400 for every 1,000 pieces he mailed.