Forecasting Net Revenue from Direct Mail

At your Executive Staff weekly meeting, the CEO turns to you and says "can we net $10,000 from the next direct mail appeal?"

How do you answer?

Well, let's say you've already found your Break Even Quantity (BEQ). Since it's less than all your donors and prospects, you're ready to undertake the mailing. How do you determine whether the mailing can realistically make the desired profit?

By the way, don't let the word "profit" scare you – in this case, every penny of your profit carries out your mission. So, if you, your CEO or Board eschew the concept of profit, position this as money that pays for program expenses to impact your community.

To figure out your profit, you need to expand your BEQ Model.

Currently, your BEQ looks like this:

BEQ=FC/(AG*RR-VC)

Where:
BEQ = Break Even Quantity; total number of people who must receive your appeal
FC = Fixed Costs; may include staff time
AG = Average Gift; total revenue raised divided by total number of donors
RR = Response Rate; what % of donors who receive your direct mail will give
VC = Variable Costs (e.g. postage, printing)

To include profit in your model, simply add the desired profit (PR) to fixed cost (FC).

Your new formula looks like this:

BEQ=(FC+PR)/(AC*RR-VC)

The table below shows an example:

Sample Nonprofit
Constituents		10,000
Fixed Costs:
Mail set-up		$250
Design		$2,000
Total Fixed Cost		$2,250
Variable Costs (Per Unit)
Printing		$0.5
Envelopes		$0.25
Reply envelopes		$0.25
Postage		$0.2
Variable Cost		$1.2
Average Gift		$75
Response Rate		0.03
Necessary Profit		$10,000
BEQ=(FC+PR)/(AG*RR-VC)
BEQ		11,667
Constituents		10,000
Variance		(1,667)

In this example, there simply aren't enough donors to meet this goal of raising $10,000. You can tell your CEO that you won't be able to net the desired $10,000 from the direct mail. If the need for these funds is urgent, perhaps you should seek those funds from a major donor or Board member.

In future posting, we'll discuss what you can do to increase the response rate and/or average gift.