Three Years and $3 Million to Break Even
For future reference, this loss can be viewed as the cost of adding one new buyer to your housefile.
Breakeven for Prior Buyers
That’s for prospects. Now doing the same math for mailing to prior buyers, the only number we need to change is the response rate. But look at what a difference that change makes.
A typical response rate for prior buyers is perhaps 5 percent (averaged over three years worth of buyers). Which means you must mail (and pay for) just 20 catalogs to get each order. This drops your catalog creation cost from $50 to just $10 per order (since you must mail only 20 catalogs to get one order, not 100 catalogs as before). All other costs stay the same, so your total costs for a sale to a prior buyer are now $10 + $37.50 + $10= $57.50, which when subtracted from your gross revenue of $75 leaves you with a healthy profit of $17.50 on each order from a prior buyer.
This demonstrates the truth so well known to most catalogers: mailings to buyers are profitable, mailings to prospects aren’t, and a catalog program achieves breakeven when its list of prior buyers becomes large enough to earn enough profit from each mailing to offset the catalog’s prospecting losses and operational costs.
How many names must I have on my housefile to achieve that kind of breakeven?
Extending the above calculation, if your housefile contains 15,000 buyers (over the past three years), and if you mail each of these buyers four times per season at an average response rate of 5 percent per mailing, you’ll generate a total profit of 15,000 x 4 x .05 x $17.50 = $52,500, which is enough to cover the loss on 2,333 prospect orders, meaning you can pay for a total prospect mailing quantity of about 233,333 (at a 1-percent prospect response rate). Adding this prospect mailing quantity to our prior buyer mailing of 60,000, we get a total print run of about 300,000. And figuring that you’ll receive about 10 catalog requesters on your housefile for each buyer, your gross housefile count will consist of 15,000 buyers plus about 150,000 non-buyers, giving you a total housefile size (buyers plus non-buyers) of 165,000.