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SCORE COUNSELOR'S ADVICE |
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Direct
Marketing 101, page 3/3
Steve Lember, SCORE 513 Counselor
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Disaster?
None of the lists will produce a profit. Right? Wrong! Since
this is a test, I know when I mail in quantity of say 100,000,
the cost my mailing package will be $800 per 1,000 mailed.
That means in the example above, List E will produce a profit
of $150 per each 1000 names mailed ($950-$800=$150). I will
make $150,000 on the larger mailing, assuming that there
are 100,000 names available to me from list E.
Now
let’s make it a little more complex.
Scenario
2. I now add a package insert with my book that sells a Special
Liver Cooker. I make a gross profit of $30 on each cooker.
I know that 20% of the book buyers will buy a cooker. The
package insert costs $0.10 each. When I send the cooker to
the customer, I have another offer for Special Liver Spices
(gross profit = $10) at a promotion cost of $0.10 per insert.
I know that 50% of the cooker buyers will buy the spices.
We will also use the roll-out cost for the mailing ($800/1000
pieces mailed).
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List
A |
List
B |
List
C |
List
D |
List
E |
| Quantity
Mailed |
1,000 |
1,000 |
1,000 |
1,000 |
1,000 |
| Response
(%) |
10
(1%) |
20
(2%) |
50
(5%) |
100
(10%) |
200
(20%) |
| Revenue |
$60.00 |
$120.00 |
$300.00 |
$600.00 |
$1200.00 |
| Cost
of Sale |
$12.50 |
$25.00 |
$62.50 |
$125.00 |
$250.00 |
| Gross
Profit |
$47.50 |
$95.00 |
$237.50 |
$475.00 |
$950.00 |
| Promotion
Cost |
$800.00 |
$800.00 |
$800.00 |
$800.00 |
$800.00 |
| Profit/(Loss) |
($752.50) |
($705.00) |
($562.50) |
($325.00) |
($150.00) |
| Liver
Cooker |
2 |
4 |
10 |
20 |
40 |
| Profit |
$60.00 |
$120.00 |
$300.00 |
$600.00 |
$1200.00 |
| Promotion
Cost |
$1.00 |
$2.00 |
$5.00 |
$10.00 |
$20.00 |
| Add'l
Profit |
$59.00 |
$118.00 |
$225.00 |
$550.00 |
$1180.00 |
| Spices |
1 |
2 |
5 |
10 |
20 |
| Profit |
$10.00 |
$20.00 |
$50.00 |
$100.00 |
$200.00 |
| Promotion
Cost |
$.20 |
$.40 |
$1.00 |
$2.00 |
$4.00 |
| More
Profit |
$9.80 |
$19.60 |
$49.00 |
$98.00 |
$196.00 |
| Total
Profit (Loss) |
($683.70) |
($567.40) |
($288.50) |
$323.00 |
$1526.00 |
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Now, List
D and E are profitable because of additional sales. My LTV
for List D is $3.23 per customer ($323 / 100) and a whopping
$15.26 for List E. What would happen if half the people from
List E decided to return the book? And none of them took
me up on the additional offers? Suppose I raise the price
of the book to $10 plus $1 postage and handling. I will probably
have fewer buyers but, if my sales drop by 25% and I’ve doubled
my revenue, I’ll come out ahead since my costs have not increased.
Remember, price is something you can test.
Want
to Learn More About Direct Marketing?
Many areas
around the country have direct marketing organizations. They
all have regular meetings, seminars and other educational
opportunities. In the Philadelphia area there is the Philadelphia
Direct Marketing Association (PDMA). Their web address is http://www.the-pdma.org.
There is also the national organization, the Direct Marketing
Association (DMA): http://www.the-dma.org.
Find out how you can use direct marketing to positively impact
your bottom-line.
In addition,
many SCORE chapters, including this one, have members who can
assist you with direct marketing related issues. |
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