Per Inquiry Advertising Cost Structure

When you take something to television, anticipate these costs: your product cost should be 1/5 the retail price, shipping and handling should cover shipping and telemarketing if possible, media will cost 50% of the retail price, anticipate a 10% return rate. The last may seem high and for quality products it is. Returns go up and down based on how you do things. If you ship all orders the next day your returns are lower than if you take 4 to 6 weeks for delivery. If you ship orders COD you'll have a very high return rate.

Typical cost structure:

Product Cost $4.00

Retail Price $19.95

Telemarketing/phone $3.50

S/H $5.95

Shipping/Fulfillment $4.50

Merchant Account/Credit Card Processing $1.00

Returns $2.00

Television Media $10.00

Total costs $24.50

Total Revenue $25.90

You can see that we are collecting $1.40 more than our costs. Pretty slim margin. And that margin will be consumed by customer service or miscellaneous errors. You get a shipment of bad product, you send samples out to television stations to thank them for working with you, whatever... but count on that slim profit margin being consumed.

Also, the media cost listed above does include what you pay your agency. Agencies work on a 15% commission. So that $10.00 media cost actually means that $1.50 goes to your agency and $8.50 to the station.

My breakdown only assumed television orders. You will have web orders as well and your cost is less on those because you don�t have to pay an operator.