You have to spend money, to make money, right? But how much do you need to spend in order to earn your money back in digital publishing?
That’s the question marketing professionals in publishing ask themselves but may not spend the time to find out the answer and adjust accordingly. To avoid that mistake, take a moment today to figure it out.
Your allowable cost per order is the amount of money you can spend on marketing to acquire a new customer. It is calculated by taking the total revenue received from the customer on a single purchase or over the lifetime for a subscription or membership, and subtracting the marginal fulfillment cost to serve that customer. The remaining amount can be spent on customer acquisition and is often referred to as your allowable cost per order or your allowable marketing cost per order.
Understanding how much you can spend to create a new customer is fundamental to running a profitable publishing business. Because the subject is so complex, we typically omit a number of factors and simplify the calculation to ensure that each new customer we’re acquiring is at least covering the cost of acquisition and fulfillment. This new business philosophy assumes that you have other things to sell a customer or other ways to monetize such as advertising and sponsorship.
Subscription products which can offer very low introductory prices and generate relatively high conversion rates are often your best source of new-to-file customers. Using one-shot products and events to build your database is typically less productive, but may still be a good source of new customers. Below, we’ll review all three using the above simple allowable cost per order formula.
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Scenario 1 is the most simple: selling a $97 trade book from a niche trade publisher. In this case, APCO is a simple calculation taking revenue and deducting printing & shipping costs.
$97 list price
– $35 printing & shipping cost
This publisher is allowed to spend up to $62, though if they want to make any money, they should spend less than half that, considering this isn’t a renewable subscription guaranteed to bring in future revenue.
Scenario 2 is for an all-access magazine membership with a 6-issue print component. Let’s assume the lifetime of the subscription is three years, with a $10 introductory price for 30 days, a $29.97 price once they convert, and a $39.97 price for each renewal every year after.
$10 intro price
$29.97 conversion price
$39.97 renewal price
– $6/yr print issue fulfillment costs – $1 per issue
– $.156/yr digital fulfillment costs – 3 content-driven engagement emails per week x 52 weeks x $1 per 1K emails
APCO: $61 for a 3-year lifetime
One note is that digital fulfillment is substantially cheaper. Digital fulfillment we’re calculating at ($.156/yr) compared to print ($6/yr). Another good-to-know is that conversion rates are estimated at about 50% with a renewal rate of 60%.
Scenario 3 is another simple calculation and is based on a publisher’s live event.
$3,000 attendance fee
– $450 food & beverage cost per attendee
At the end of the day, any marketing program that can break even on new customer acquisition covering marginal costs of marketing and fulfillment is going to be a plus for your overall profitability.
The allowable cost per order formula is a simple analysis and is designed to make sure that irrational exuberance is not a factor in building your customer database and achieving overall profitability.
What to do with your maximum allowable cost per order
The real question, after determining how much you’re willing to spend to make money, is how you’re going to spend it.
Mequoda Systems creates, operates and supports digital marketing systems for publishers selling magazine and newsletter subscriptions, memberships, clubs and events. These systems include Audience Development Portals, Digital Media Libraries and related Online Commerce Systems. We currently market more than 100 premium information products for our client partners which include Prime Publishing, Cabot Heritage Corporation, AAA Northeast and Harvard University. Our Haven WordPress Customer Experience Management System, supported by Mequoda’s proprietary ACEM (Attract, Capture, Engage, Monetize) marketing methodology, offers publishers the industry’s most robust digital publishing and marketing capabilities.
To discover how we can help you grow your audience, revenue and profits, schedule a FREE 30-minute consultation with a member of our executive team.