Direct Marketing Analysis Basic DM Financial Analysis Transaction Costs (Exh. 20-2) –Variable cost of filling an order Contribution Per Order –Revenue.

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Presentation transcript:

Direct Marketing Analysis

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.

Direct Marketing Contact Matrix