Question

Topic: Other

Direct Mail Breakeven Formlas(?)

Posted by L4mg on 8/10/2008 at 11:55 AM ET 200 Points
Hi,

I've seen a many formulas for Direct Mail Breakeven analysis.

Can someone explain/confirm that there is One formula if you know(?) the response rate, and a different formula if you have to figure out the mimum response to b.e.???

I'm unclear on this concept, no matter how much I have read and researched online.

Can you please provide actual Formulas, and *proper usage?

Thank you!
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RESPONSES

  • Posted by Inbox_Interactive on 8/10/2008 at 12:10 PM Accepted
    Are you talking about paid offers, like subscriptions?

    If you know your cost per piece (say, $1) then you just divide that into the revenue (or gross margin, depends on your business) to get the breakeven percentage.

    If each piece costs $1 and your gross margin is $5, then you need a 1/5, or 20%, response rate to break even.

    If you know the response rate (not sure how this is possible, but maybe you're just making some forecasts), then you just divide the cost by the response rate to get the target price to break even (like $1/20% response=$5).

    Depending on your business, though, you may not even need to break even on the acquisition to make money in long run. Publishers, for example, are sometimes willing to lose money on the acquisition because they are banking on a good renewal percentage.
  • Posted by Peter (henna gaijin) on 8/10/2008 at 10:17 PM Accepted
    As mentioned above, break even analysis is where you determine whether the marketing program was effective at building your business. At its simplest, you calculate how much it cost you to do the program as compared to how much money the company made from that program.

    In reality, it is often harder to calculate this than such a simple calculation would make you think. Costs are pretty easy to calculate accurately. But the benefits are often very challenging to calculate accurately. Usually you can track leads that came in from direct mail, but not necessarily end result sales. And even if someone buys after the receive the direct mail piece, this may not be the first touch your company has had with that customer, so which program should be credited with the sale for ROI purposes? These types of challenges make ROI calculations more of an art than a science, unfortunately.

    There are a variety of resources on the marketingprofs web site. Check out the various articles under the marketing resources tab above (or click https://www.marketingprofs.com/marketing/library). Or do a search in the search box above for terms like "direct mail ROI"
  • Posted on 8/11/2008 at 10:19 AM Member
    If you want more background information on this formula or others that might be helpful/relevant to you for direct marketing, try the Direct Marketing Association website:

    https://www.the-dma.org/index.php

    Good luck!
  • Posted on 8/11/2008 at 11:06 AM Accepted
    I have posted a direct mail worksheet from a book published by the National Mail Order Association, Direct Marketing Toolkit; https://www.nmoa.org/directmarketingtoolkit/

    https://www.nmoa.org/articles/dmnews/advancedworksheetfordirectmail.pdf

    The book comes with an Excel version of this.
  • Posted on 11/4/2011 at 1:38 PM Member
    Calculating your DM response break-even point is important to all mailers….especially new mailers who may not yet understand the dynamics of a successful direct mail campaign. We offer a simple widget to use to figure the percentage response needed to “break-even” on their DM investment. You can also add the widget to your website or blog for free. Go to https://www.bbdirect.com/direct-mail-response-break-even-calculator.php
    All the best.
    Brian Berg / BB Direct
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