This is yet another crude rule of thumb, offered for your use only until you have actual experience and actual results to guide you. So, for example, assume that a £100 advertisement will produce at most 100 sales, and possibly, or even probably, far fewer, depending upon the appeal of your offer and the selling price. If your gross profit margin of two- thirds would not adequately cover your advertising cost, overheads and desired net profit on a sale of 100 items, then pitch your price at a different level or look for a different product.

Most carriers charge more for their services than the Post Office; and the Post Office has a rate scale that increases with weight, and a maximum weight for parcels of 25kg. For higher weights than this you are obliged to use non-Post Office carriers. One way or another, the heavier your product, the more it will cost to despatch.

Whether you separately identify delivery cost in your advertising or embody it in a so-called delivery-free product price, it forms an important element in the mail order calculation, and it must be considered at a very early stage in your product search.

Ideally, delivery cost should be only a small addition to the product price — preferably not more than about 15 per cent — if it is not to put customers off. The higher the price of the product, the less you need to worry about weight; the lower the price, the more important it is.

Note that it is price/weight ratio that matters, not cost/weight ratio. It can well happen, especially if you are the manufacturer, that the cost to you of the product is lower than the cost of shipping it. That doesn’t matter. The figures that have to be weighed against each other are the price the customer pays for the product itself compared with the amount he has to pay to get the product delivered.

How is your profit margin? Are you profit earner?

Most people new to retailing experience a mild shock when they first learn the prices at which goods change hands within the trade compared to the prices at which they are sold to the public. It seems that traders must be making fortunes. Typically, for example, a book selling in the shops for £9 may be available within the trade for £6, or a TV set selling for £250 may have a trade price of no more than £180. With such profit margins, the beginner is tempted to believe he could make his first million in a year at most. It isn’t so, of course. The profit margins illustrated above, though fairly typical, are only gross profit margins. The trader’s real profit — his net profit — is not the simple difference between his selling price and his buying price, but between his selling price on the one hand and his buying price, advertising costs, rent, rates, wages bill, stationery, postage, insurance, heating, lighting, telephone, accountancy, bank charges, interest charges, equipment purchase and maintenance and other overhead costs on the other.

The 3:1 ratio

The new mail trader operating in a small way, and possibly running his business from home, may be spared some of these costs, but advertising and shipping costs alone can be heavy, and the gross profit margin must be large enough to cover these costs and still leave a net profit. The conventional wisdom is that about a third of the mail order selling price is needed to meet the cost of advertising the product. This means that just to break even on your advertising, you probably need a 50 per cent mark-up — that is, a selling price half as much again as your buying price. For example, buying for £6 and selling for £9 will at best allow you to cover your advertising costs but nothing more. Buy for £6 and sell for £8, and you can confidently expect to lose money.

This is, of course, a crude generalisation, and any actual set of results may contradict it. But in the absence of specific evidence with a particular product, earmark a third of your selling price to pay for your advertising.

What sort of gross profit margin, then, are you looking for? Again, the generalisation is crude, but something like a two- thirds gross profit margin is desirable if you are to have a realistic chance of making a net profit. One-third of the selling price, as already suggested, will hopefully cover your advertising cost, and another third will cover everything else and give you a chance of being left with a profit.

For example, if you’re buying for £6, you must consider selling for not less than £18. That may look like an enormous profit, but it isn’t. Most of the ‘profit‘ will go in paying for the promotion, processing the enquiries, and fulfilling the orders.

It comes to this: your selling price will probably need to be not less than three times your buying price if you are aiming to make an immediate net profit from your advertising. This is the 3:1 ratio to keep in mind as you assess likely products. If you’re thinking of dealing in Whatsits, and they are typically being retailed at £12, you can see at once that you can’t afford to pay more than £4 yourself. And again: if you manufacture something yourself for £10, you will probably need to sell it for £30 or more to have a chance of making a profit, and if £30 looks ridiculously high as a retail price — well, back to the drawing board.

You buy Product A for £6 and sell it for £9. Profit: £3. You buy Product B for £2 and sell it for £7. Profit: £5.

That elementary arithmetic is easily overlooked. Of course, you will want to think of your possible selling price as you consider different products, but you must also keep in mind the profit margin that the product offers. The selling price matters to your customers; the profit margin matters to you.

Price is a major factor in any selling operation. The lower the price, the more sales you can expect to make, though whether the increased sales lead to increased profits depends upon the make-up of the selling price. For example, if by keener purchasing you reduce your cost from £3 to £2 an item, you can reduce your selling price from, say, £9 to £8, and still make the same number of pounds profit per item sold, with the chance of increasing your number of sales. By contrast, lowering your price from £9 to £8, while still purchasing for £3, must reduce your profit per item, and only testing the market will show whether your lower price leads to a sufficiently increased number of sales to compensate for the reduced profit margin.

The narrow competition

As far as product choice is concerned, you must be able to price competitively, both in competition with other mail order dealers and with the shop trade. Few people will order by post if they can pick up a similar product at a similar price on a local shopping expedition.

The broad competition

Bear in mind also that you’re just one of many people trying to get the public to part with its money. You’re therefore in competition with all other traders, not just those dealing in similar products to your own. People only have a limited amount of disposable cash. Anything spent on booking a holiday in Spain is not available for buying a new wheelbarrow; anything spent on a new wheelbarrow is not available for a new pair of shoes; anything spent on shoes is not available for a crate of beer — and so on. When customers buy your product, they are at the same time denying themselves very different but doubtless equally appealing products from someone else. The less painful you can make this denial, the more disposed people will be to buy from you.

Easing the pain of purchase

Assure the customer that he is not making an irrevocable commitment to your product: if he finds he doesn’t like it, he can return it for full refund. This money-back guarantee helps the customer to feel that he is not really making a final choice: if he is disappointed with the binoculars he buys from you, he can always get his money back and buy a digital watch from someone else.

Another way of easing the pain of purchase is by price. If the price of your product is low enough, the customer may feel it to be only an incidental expenditure that barely influences his other possible purchases at all. But how low is low? The executive on a five figure salary will not have the same view of what constitutes incidental expenditure as a schoolgirl doing a Saturday job in the local bread shop. But most prospective mail order customers would probably consider anything under £5 as a minor outlay, and anything up to £10 as not terribly significant. That defines the price range in which it is easiest to sell.