Yep, that’s pretty much the math right there, although on the offers I’m currently running I’m at closer to 40% food cost. We bundle a pizza with items that don’t take much (or any) labor like bread sticks or 2 liters. We give up that 10% extra in food cost but are able to offset it with a low marginal labor rate, keeping the prime cost at 50% or so.
I misspoke in my last post. My Sales/Cost ratio for database mailers is usually on the order of 10 to 1. I accidentally calculated the 14 to 1 based on the cost of saturation mail; addressed mail is significantly more expensive. So, for my current database mailer (1,000 pieces to existing customers) my total cost was $244. It generated $2,204 in sales. We had an estimated food cost of $841.93 and gross profit of $1362.07. (1362.07-244)/244 yields a 458% ROI for the drop.
This is actually something we look at every single day. Each offer has a spreadsheet and I enter what the sales were and how many were received. The spreadsheet then calculates the estimated gross profit for the orders based on the offer and how much was upsold (the amount of sales above and beyond the offer price.)
Just don’t get bogged down with your redemption rate. You can send out an offer for $1.00 large pizzas and get a 50% redemption rate, but guess what your ROI is going to be! Like Royce said, he can get 1 out of 1000 back and have it be a very sucessful campaign.
I’ll echo what he said on experimenting with your frequency too. I’ve found I can maximize the ROI on database mailings by sending every other week. Every week was too often, every three weeks and I was leaving some money on the table. For mass mailings, five weeks seems to be the magic number for us. We just keep rotating through all of the zones over and over and over again.
