Pricing Your Product: The Arithmetic of Direct Mail

Pricing Your Product: The Arithmetic of Direct Mail

Direct mail is all about numbers. It’s about conversion rates and prices, average customer values and upsell rates. If your numbers work and you get a decent conversion rate, you’ll make money. If your numbers don’t work, you won’t.

The price you choose for your product has a huge impact on whether or not you’re profitable at the end of the day.

Generally speaking, in order to succeed in direct mail you need to price your products at around $60 or higher.

Because of this, the products you choose and the lists you promote to are limited. The likelihood of getting “free” subscriber sign-ups to buy are much lower. Instead, the value of buyers who’ve purchased more expensive items goes up considerably.

It’s much easier to sell to people who’ve bought $200 items from catalogues or your $60 product than it is to sell someone who signed up for a $10 subscription.

These are the most important numbers to know.

==> The Golden Rule: Shipping and Handling

The golden rule is that your shipping and handling needs to cover the costs of shipping and product production. That means that every dime you make from the product price needs to be gross profit.

If you sell a product for $69.95 and have a shipping and handling of $7.95, that $7.95 needs to cover both production and shipping.

The simple truth is, marketing costs a lot of money. Direct mail costs a lot of money. Even with a 100% gross profit margin, you still have a large chance of failure. Having all the profits you can get to funnel into your marketing costs and net profits is essential.

==> Why the $60?

Let’s take a look at what would happen if you sold your product for $30.

Let’s say it costs you $800 to mail to a thousand names. If you’re mailing to lower quantities, your cost per thousand will be higher.

If your product sold for $30, in order to make $800 you’d need approximately a 2.66% conversion rate. In order to make a profit, you’d need an even higher conversion rate.

That’s simply not going to happen. Even home-run mailers are about 1% to 1.5%. If your business model depends on a 2.6% response to succeed, you’re dead in the water before you begin.

==> The True Goal of the First Product

The true goal of your first product should be to cover your marketing costs and the cost of acquiring a new customer.

In our previous example, even with a $60 product and a 1% conversion, you’d still barely be breaking even. That’s actually a very good thing.

Most direct mail campaigns won’t make money on their first run. Instead, you’ll make the majority of your money on back end products, upsells and continuity programs.

The first product’s goal should just be to get a new customer into your funnel at as low a cost as possible, preferably free.

Pricing Your Product: The Arithmetic of Direct Mail