What Response Rate Do I Need to Break Even?
Last month I wrote a post about how to calculate breakeven for direct mail campaigns. A blog reader requested a formula that calculates the response rate needed to break even.
To determine the breakeven response rate, you need to know what kind of average order (AOV) your campaign will generate.
Let’s look at three different AOV examples and see how AOV impacts the breakeven response rate. We will use the same costs as before.
For our campaign, we had the following costs:
- Print expense = $0.24
- Postage = $0.28
- Cost of Goods Sold = 55%
- Operating Expense = 5%
Using our breakeven formula…
($0.24 + $0.28)/1 – (55% + 5%) or $0.52/40% = $1.30 breakeven.
To calculate your breakeven response rate, divide your overall breakeven by the campaign AOV.
Let’s take a look at three different catalog brands.
Catalog brand A sells inexpensive items to consumers and has an average order of $50. Catalog brand A’s minimum response rate needed to break even is $1.30/50 = 0.026 or 2.6%.
Catalog brand B sells apparel to consumers and has an average order of $125. Catalog brand B’s minimum response rate needed to break even is $1.30/125 = 0.0104 or 1.4%.
Catalog brand C is a B2B brand with a much higher AOV of $750. Catalog brand C’s minimum response rate to break even is $1.30/750 = 0.00173 or 0.173%.
Key Breakeven Takeaway
Even though all three brands share the same $1.30/Book breakeven, brands with a low AOV require a much higher campaign response rate to break even than brands with a high average order.
If your catalog or direct mail campaigns are not driving results like they used to, give us a call today. We evaluate print programs and also support brands with planning and executing direct mail campaigns.