Variable, Not Fixed Costs

But if you used the variable cutoff, the $1.89 demand per catalog would meet the criteria of $1.67 demand per catalog, and those 13-to-24-month buyers would be more attractive to mail. From this sample, you can see that using the fixed-break-even approach would be incorrect.

Why? Because as discussed earlier, the $2 breakeven includes fixed costs that are unrecoverable once you’ve decided to mail a catalog. In fact, every name in the 13-to-24-month, one-time-buyer recency category who is mailed will generate $0.22 in incremental contribution ($1.89 demand per catalog minus $1.67 variable break-even demand per catalog) to pay off your fixed costs. Therefore, you should continue mailing the 13-to-24-month one-time buyers.