Breakeven Response Rate

By: EconomyWatch   Date: 30 June 2010

About The Author

EconomyWatch

The core Content Team our economy, industry, investing and personal finance reference articles.

EconomyWatch, Content Team

 

  • Dot Div
  •      

Metrics: Breakeven

The Question:

At what point does a campaign become profitable?

Approach:

How many sales do we need to cover all our costs?

Commentary:

We need to understand the Marginal Profit Per unit (ie sale price less variable costs, including COGS, commission, fulfillment etc) Don't run a campaign or cell unless you expect to breakeven! Test if necessary.The Formula

Breakeven (# of units) = Fixed Costs ($)/ Contribution Per Unit ($)

or

Breakeven (# of units) = Fixed Costs ($)/ (Sale Price($) – COGS($) – Variable Costs($))

WARNING!!!

Remember what are fixed and variable costs!

Fixed Costs = Those that do not vary with volume of sales

Variable Costs = Those that increase with sales

Variable costs can include:

- Commission on sales

- Delivery and packing costs for the item(s) sold

- Free gifts with the order, etc

Per contact DM costs of the marketing campaign must be totalled and added to fixed costs

Metrics: Breakeven Response Rate

The Question:

What response rate do I need for my DM campaign to be profitable?

Approach:

What are my per contact costs, and what is my average profit?

Commentary:

We need to calculate total costs to contact a full list or a test cell, and know our average contributing profits on a sale

The Formula:

Break Even Response Rate (%) = Cost Per Contact ($)/ Contributing Profit Per Sale ($)

Metrics: Size of Test Cell

The Question:

How big should a test cell be, to accurately measure profitability?

Approach:

A formula based on breakeven response rates

Commentary:

We need to mail enough contacts to get a statistically valid result, without wasting any more money than needed

The Formula:

Test Cell Size = 4/ Break Even Response Rate

Sales & Marketing

Marketing for Dummies Guides

Measuring, Marketing, Metrics & KPIs

Online Marketing/ Digital Marketing


  • Dot Div
  •      

Most Popular in Marketing

Related Links
blog comments powered by Disqus