CALCULATING BREAKEVEN
It's an ill-kept secret of big corporations that many executives have a very weak grasp of their own companies' costs and prices. Don't make that corporate mistake. When you send out a direct mailing, always do a breakeven analysis. Will you make a profit if you get a 1% response rate? Or do you need a 4% response to make a profit? Don't let your optimism obscure the cold facts. If the numbers show you're unlikely to break even on a mailing using conservative assumptions, find another strategy.
Calculating your breakeven point on a direct mailing, however, might demand a little guesswork. Here's why: When you send out a mailing to a list of new prospects, it can be important to take into account not only the value of the first order you receive, but the lifetime value of new clients you attract. In some cases, your direct mail can be profitable in the long run even if you fail to break even on initial orders.
Usually we use the Private Eye to highlight smart ways of doing business. Here, though, is an exception. We want to point out a really dumb way of running your company. Often marketers will accept low margins on a special offer to build their customer base. But how low is too low? Our favorite example of corporate ineptitude is that of a British airline that offered fliers a free washing machine with every coach trip across the Atlantic. 40,000 Britons took them up on the offer before executives of the airline realized that they were losing money on every passenger.
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