The fallacy behind "break-even point" strategy

23 Jul 08 - Mark Klein

We believe that there is a big fallacy buried in the strategy of companies that use direct mail.
Most direct mailers, especially catalogers, have a ‘house list’ of customers to whom they mail. This list is scored by one methodology or another, for example recency or RFM (Recency, Frequency, and Monetary value). These companies usually talk about “mailing down” the list to some point called the “break-even point”. By this they mean they have ordered their scored list with their best customers at the top and their worst customers at the bottom, and have identified a point on the list below which it is unprofitable to mail. “Unprofitable” typically means that the mailing cost to reach these lower ranking customers exceeds the gross margin dollars that the mailing generates.