The following is a typical example of anticipated cost for a $19.95 product (plus $5.95 s&h) when advertising through short form direct response spots (30 to 120 sec.).

Cost of Media ($8.00 per sale)

This would be the average per sale you pay for air time, or pay a P.I. agency for each sale generated.

Cost of Telemarketing ($2.50 / sale average)

You'll need to have your phone calls (orders) answered on an 800 number, 24/7.

Cost of Fulfillment - Shipping & Handling (estimate actual cost at $4.95)

While this fee is meant to cover postage and handling, most marketers allow for a little cushion of profit. Actually, your fulfillment company does a lot more than just ship the product to the consumer. The fulfillment company interfaces with your merchant processing bank and the telemarketing company. Usually, they are highly automated and computerized companies who also handle customer service for you, serving to issue refunds, track shipments for your customers, etc. 

Cost of Merchant Processing (shouldn't be more than 4%, about $1.00 here)

This is the discount fee to accept and process VISA, MASTERCARD, DISCOVER, etc. Rates are generally higher than regular merchant accounts since you are considered to be a mail order merchant taking verbal orders over the phone. 

TOTAL

After all costs of media, telemarketing, fulfillment, and merchant processing are considered you here have about $9.45 left over. Assuming you have a 5:1 margin ($4.00 cost of goods) you should net $5.45 per sale. This doesn't include a major revenue element of direct response advertising: upsales - very often, that is where the real money is made!

(reprinted with authorization)

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