Don't Try This at the Office

Now redo the calculation as $700 times 58 percent for $406 in contribution margin. Divide $200,000 by $406, and 493 orders are needed for the program to break even (or 0.986 percent response rate).

Understanding the expense investment is important, and the senior manager should have contrasted this analysis with the cost to acquire a new customer. If reviewing historical response rates for prospects indicates 1 percent is possible, coupled with further indication that a first-time buyer yields a lower average order value, it quickly appears that reactivating customers is a better strategy for the investment.