Guidelines for Acceptable Direct Selling Expenses (1,202 words)

The key ratios that need to be managed are in the direct selling expense category. There can be variations by line item as long as the total selling expense-to-sales ratio does not exceed your overall goal for this category. This is only a guide. Your actual percentage will vary.

Last, let's examine the relationship of the housefile to prospecting. If you want to remain profitable, it is important to maintain a balance between mailings to the housefile vs. mailings to prospects. Startups or companies with small housefiles will see lots of red ink. This is based on simple arithmetic. A typical response rate to a housefile is 3.5 percent to 4.5 percent compared to 1 percent to 1.5 percent (or more) from outside rented names. Mailing to more rented names will dilute the overall response rate from the housefile, which will most likely result in a bottom line loss. The first column of Chart B (page 40) represents the balance between mailing to the housefile and to outside rented names. As you can see, this balance results in a positive contribution to profit and overhead. The second column shows what happens when the amount of prospecting is increased by 30 percent. The next column represents an increase of 50 percent over the base amount. Finally, the last column calls for a 100 percent increase in prospecting, and as you can see, the contribution to profit and overhead is negative. Keep in mind that this example does not consider the lifetime value of the names acquired. The more prospecting that is done, the less contribution there will be. Unless a company is well financed, less contribution will affect profitability and cash flow.