Basic DM Financial Analysis • Transaction Costs (Exh. 20-2) • Variable cost of filling an order • Contribution Per Order • Revenue minus transaction costs • Marketing Costs (Exh. 20-5) • Front-end expenses (list rental, mailing, ads, telemarketing, etc.) associated with getting the offer to potential customers
Basic DM Financial Analysis • Breakeven Response Rate (BERR) • BERR% = Mkt Cost per thousand Contribution per order x 10 • Contribution: A=$19 B=$30 See Exhibit 20-6
Basic DM Financial Analysis • To Adjust BERR% for a Target Profit • Profit RR% = Mkt Cost per thousand (ContPO - target profit) x 10 • Avg Sale: A=$50 B=$80 Desired Gross Profit is 10% See Exhibit 20-6
RR%, LTV & Contact Matrix • The response rate % can be used in connection with the LTV and your marketing cost per thousand to help determine your firm’s contact strategy. • Example: assume the LTV of your past customers is about $25. How many segments would you mail for Offer A?How about Offer B? • A contact matrix helps.