Mailing a Catalog? Use This Break-Even Formula.
If you’re mailing a print catalog for the first time, then calculating your break-even is an important part of your mail order catalog strategy.
Planning a successful catalog campaign involves multiple calculations. The key metrics are direct mail response rate, average order, catalog costs, and gross margin.
Let’s look at direct mail response rates first because this comes up a lot. I’m often asked what response rate can we expect? There is no simple answer such as “let’s just assign 3% to the entire print campaign”. Response rates vary considerably depending on what you sell, who you sell to, and the time of the year.
Catalog response rates should also be estimated for each customer segment and recency. For example, buyers who last ordered 36 months ago will have a much lower response rate than buyers who ordered in the past 12 months. Customers who order 2 or more times will have a higher response rate than customers who placed just one order.
Average order tends to be easier to estimate because the data is readily available and less likely to fluctuate wildly by segment. Other than minor tweaks by customer segment, you should be good to go.
Create a preliminary circulation plan that includes revenue projections for a few key segments. Because this is a new catalog launch, we start by exploring revenue projections for your “0 to 12 month” and “13 to 24 month” buyers first and adding a placeholder for prospecting or acquisition circulation.
Make sure you project a realistic drop-off in revenue per book for the “13 to 24 month” segment. The drop-off in response can range from 25% to 55% or more. The customer counts in your circulation plan should be projected net counts based on dedupe or merge purge.
Next, enter your direct mail expenses and gross margin into the break-even formula to calculate your direct mail campaign break-even:
((Print cost per piece) + (Postage per piece) + (Other Cost per piece)) / ((Gross Margin %) – (Operating Expense %))
Add merge/purge, list rental, and other marketing costs to “Other Cost per piece” when calculating break-even.
Let’s evaluate two different brands making the same print catalog choice:
Brand A sells private label products, decides to mail a 36-page Slim Jim catalog at the letter rate, and participates in a co-mail pool. Brand A’s break-even might look something like this:
(($0.22) + ($0.26) + ($0.04)) / ((75%) – (2%))
Brand A’s break-even is $0.52 / 73% = $0.712 per piece
Brand B does NOT sell any private label products, decides to mail a 36-page Slim Jim catalog at the letter rate, and is unable to participate in a co-mail pool because they did not plan ahead. Brand B’s break-even might look something like this:
(($0.22) + ($0.29) + ($0.04)) / ((46%) – (2%))
Brand B’s break-even is $0.55 / 44% = $1.25 per piece
As you can see from the two examples above, both brands have fairly similar direct mail expenses but completely different break-even outcomes due to differences in gross margin.
Now that you’ve calculated catalog break-even, you’re ready to finish building out your detailed circulation plan and can project the catalog contribution for the upcoming campaign.