A few words about response rates
There is no such thing as a guaranteed response rate. In fact, predicting any kind of a response rate is difficult, if not impossible, because countless variables can affect your response. Just to list a few:
* Your price
* The mailing list
* Your creative approach
* The offer
* The uniqueness of your product
* Your competitor's price
* The seasonality of your product or offer
* The image you project
* Mother Nature
Still, you need something tangible on which to base your marketing decisions. One approach is to determine your marketing break-even point. The following simple model illustrates the break-even approach.
If your product or service retails for $500 and costs you $300 to buy, build or provide, that leaves $200 gross profit to cover your overhead and the cost of your marketing. Suppose your direct mail program costs 40 cents per piece or $400 per thousand pieces. Divide the $400 per thousand by the $200 gross profit, which equals two sales per one thousand mail pieces mailed. These two sales represent the number you need in order to break-even, (before overhead).
Keep in mind that not every respondent will purchase, so we must assume you will be able to close some percentage. For the purpose of this illustration we will assume 25%
Now, if you require two units to break-even and you sell 25% of your respondents you will require eight responses to break-even or a response rate of .8% (8/10 of one percent)
Now, based on what you know about your company, the industry, and the product, does that closing ratio seem realistic and attainable?
Recognize also that this break-even illustration considers only your initial sale. If yours is a product or service that is frequently reordered, you must consider the lifetime value of a new account. This process leverages your breakeven point even lower.
If you would like help calculating your marketing break-even point contact us today and well go over the numbers… 800-771-9898