How to reduce your risks in testing and launching newsletters.

New newsletters are a key tool for increasing company profits. And they protect the company through diversification. But launches carry their own risks. Here's how to keep that risk as low as possible, while making sure any potential new idea gets a legitimate chance for success.

Four key risks & their costs

There are four key risks in launching a new newsletter, some more potentially damaging to your company than others. For each, there is a strategy to reduce the financial cost of a failure.

* Risk #1--universe size and price potential. Are there enough prospects at the price you can charge for the newsletter to ever make a profit? This is my favorite risk, because you can eliminate it without spending a single penny--using a computer model.

* Risk #2--reader interest in topic. How eager are your target readers to receive this information? This is the biggest risk, because it is the one over which you have no control. And it will cost you a hefty price tag ($315,000 for b-to-b newsletters and $20-50,000 and higher for consumer newsletters) to test reader interest to eliminate this risk. (The low end of the b-to-b range assumes you write your own direct mail package. If you can afford it, you will be better off with a professional.)

* Risk #3--pay-up rates. If your pay-up doesn't meet expectations, your risk is the expense of producing the first 3-4 months of issues. You can reduce this risk by making your editorial hire conditional upon getting an acceptable pay-up rate, or by paying editorial a smaller fee for the first three months, with a bonus of the difference being paid once an acceptable pay-up rate is met.

* Risk #4--renewal rates. Conversion rate is the last risk, and it's not as serious as the first three. If enough subscribers won't renew, that's due either to a serious change in market conditions or to editorial that didn't deliver what was promised. Delivering the editorial you promised is definitely under your control. And, in either case, you can greatly reduce this risk by having an exit strategy in place: fulfill the subs with a similar newsletter--either yours or a competitor's.

Coming next issue--

Newsletter Launches Part 2: How to test the most new newsletter ideas for the least amount of money.

Marlene Jensen is CEO of The Newsletter Group, which advises clients on launching (or improving profit of) newsletters.

How to eliminate Risk #1 with a computer model

It's surprising how few newsletter companies use computer models to protect themselves when considering new newsletters.

For a low cost ($1,000 for a model you can use for all your newsletters [current and proposed] for the next three decades) and a couple of hours' time, you can confidently ascertain whether or not an idea has a sufficient universe size and pricing potential to be profitable for your company.

If you haven't used a model before, here's how they work.

* First you input basic newsletter production, editorial, billing, renewal and fulfillment expenses. These numbers apply to any new launches.

* Then, for each newsletter idea, look at prices of other newsletters currently being purchased by your prospects.

* Input circulation numbers for each idea, including direct mail campaigns to its universe, at a price in line with what your targets already pay for other newsletters.

* The model will then tell you whether or not each idea can be profitable at a reasonable response rate. If not, you kill the idea.