2005 - 10-27-05

Let me give you some numbers to chew on.

Let's say you spend $1,000 to pay for your advertising. Let's say you are mailing all the letters you can mail for $1,000 or spending $1,000 to run newspaper ads or maybe spending $1,000 to buy Google ad words. Let's say for every $1,000 you spend, you bring back $2,000. Let's say your refund rate is 10%.

So we have a $2,000 gross... minus $200 in refunds... and minus $1,000 for the costs of advertising. What you have left then is an $800 contribution to overhead. Not bad.

Now let's add the 30-day hold into that same equation. Here's what will typically happen: You will TRIPLE your response rate. And you will DOUBLE your refund rate. Let's look at the figures again.

We now have a $6,000 gross... minus $1,200 in refunds... and minus $1,000 for the costs of advertising. What you have left then is a $3,800 contribution to overhead. Now I'm not positive about this... but... Sir Gary of Halbert believes...

It Is Better To Have $3,800

Than It Is To Have $800

The math doesn't always work like this. Sometimes adding the 30-day hold will more than triple your gross sales... and not increase your refunds. Sometimes adding the 30-day hold will just double your gross sales... and double your refunds.

Let's see what the numbers look like using the worst of the above cases. Okay, so you double your gross, which now means you take in $4,000 and you double your refund rate (from 10% to 20%) which is $800 in refunds and you still have to subtract the $1,000 for the cost of advertising. That means you've now got $2,200.