When tracking the profit of your direct mail campaigns, you basically look at your overall income from the campaign, minus the cost of printing and mailing your sales piece. It wouldn’t make sense to track how much you sold without how much it cost you.
However, you do not need to include any kind of “overhead” costs. Expenses like office rent, salaries, utilities, etc do not belong in this equation.
Why? There is a cost to do business. You will always have “overhead” or “indirect” costs like rent, salaries, office supplies, insurance, utilities, maintenance, etc. They are expenses you have whether or not you mail.
You should only calculate the hard mailing costs and the product fulfillment costs.
The hard mailing costs would include: Printing, Postage, List Rental, Mail Processing, and Data Processing – anything that is directly associated with getting your sales piece in the mail.
Normally, I do not include the copywriter fee or designer fee into the mailing cost because the sales piece can be used for more than one mailing. For example, I’ve had a control piece for one client that I mailed for years and never had to change. If I had included all the initial start-up costs, with copy and design, in the first campaign, the mailing would have bombed because the costs to do the campaign would have shown a HUGE loss. Since I didn’t include the start-up costs, the campaign revealed itself to be a huge success and we ended up mailing the same sales letter more than a hundred times!
Here’s a how Hard Mailing Cost calculation might look:
Sales Piece Printing – $0.25 per piece
List Rental – $0.15 per piece
Data Processing – $0.01 per piece
Mail Processing – $0.07 per piece
Postage – $0.38 per piece
Total Hard Mailing Cost: $0.86 per piece
The product cost is the amount it costs you to fulfill what you are selling. For example, if you are selling a course on how to trade stocks, then you’d figure out all the costs that it takes to fulfill the order. Such as: Printing the manuals, duplicating the CDs or DVDs, the cost for the box the course goes in, the shipping cost, credit card merchant fees to process the order, and you can even account for the employee’s time to take the order and assemble the course.
Note: You are not figuring the employee’s total salary, just the time it takes to fulfill the order. If the employee is making $15 per hour, and it takes 10 minutes to take the order over the phone and 5 minutes to package and ship the course, then we can account for 15 minutes of employee time. $15*.25 (15 minutes is ¼ of an hour, or .25) = $3.75.
What you ultimately want to find out, and what you are calculating, is how much more net profit you’ll have by investing in a mailing, so you can determine how best to multiply your money with mailings.
Here’s an example of how the Product Fulfillment Cost calculation might look for selling a course at $97.
Course Manual Printing – $1.25 per piece
Course Workbook Printing – $0.75 per piece
CD Duplication and Packaging – $0.85 per piece
DVD Duplication and Packaging – $1.15 per piece
Shipping Box – $0.90 per piece
Credit Card Processing – $2.90 per piece
Employee Time – $3.75 per piece
Shipping – $6.95 per piece
Total Product Fulfillment Cost – $18.50
Here’s something else to consider when you look at your campaign costs: when reviewing your test results from a mailing and deciding whether or not you should “roll out” with a larger mailing, keep in mind that your per-piece costs for printing will go down when you mail in larger quantities. Frequently, a mailing that does not make a profit in a small test will make a profit in a roll-out because the costs are “out of whack” when printing in very small quantities.
For example, if you look at the cost per piece on a mailing of 20,000 pieces, you’ll find that it is significantly higher than the cost per piece on a 50,000-piece mailing.
Indirect costs will be incurred no matter what. They are not affected by your direct mail campaign and the profits of your campaign shouldn’t be either!