In early March, RedState’s Erick Erickson tweeted this warning: “If you are a GOP candidate using BMW Direct a/k/a Base Connect, you might be denying yourself a RedState endorsement.” Then came Louisiana Republican Rep. Joseph Cao’s decision to drop the firm citing unhappiness over returns on its fundraising investment. Cao was still in the early stages of his fundraising program, but returns had taken a nosedive after he was the only House Republican to vote in favor of healthcare reform.

Base Connect’s leaders say their firm has done nothing wrong. Over the course of a two-hour sit-down with Politics, Centanni and Bellissimo said the negative stories have grown from a combination of resentment over the firm’s fundraising success, liberal media bias and a fundamental misunderstanding of the way direct mail fundraising works.

The company bristles at the way its fundraising numbers have been reported. Absent in the many stories about the firm’s clients, says Bellissimo, is a proper parsing of where the money raised has actually gone—there are large postage costs, as well as expenses for printing and data processing. She and Centanni are armed with charts and figures detailing several of the firm’s direct mail campaigns, information they have started posting on a section of the firm’s website they call “nuts and bolts.” Russell’s mail expenses for instance show that 34 percent of gross contributions alone went to pay for postage—that’s just shy of $1.1 million. Base Connect collected just over $329,000 in creative fees while nearly $350,000 went to printing costs and just over $326,000 for list rental expenses.

Russell netted $841,260 in 2008 with the program—total direct mail contributions exceeded $3.2 million.

So yes, given the production costs, the profit margins may not be quite as high as the gross numbers suggest, but the vendors are by no means going broke. Still, Bellissimo is convinced her company and her industry are unfairly getting a bad rap. “When you see these bad stories about us it’s always, ‘They own all these companies, and they’re all intermingled and it’s so incestuous,’” Bellissimo says. “Well, so does everyone else.”

Untangling the questions critics have raised specifically about Base Connect and generally about direct mail fundraising requires a closer look at how it really works. What are the standard costs of a direct mail fundrasing program and for which campaigns is it best suited?

Some direct mail fundraising practices regarding fees and commissions are industry standard—even some that might surprise outside observers. Getting a direct mail fundraising program off the ground often means losing money in the short run. But other practices differ across the industry. And it’s there that the details truly matter.

How It Really Works

Let’s start with some history. Before political direct mail fundraising was even an industry there were campaigns with success stories. In 1952, Dwight Eisenhower’s campaign raised money through the mail. Republican presidential candidate Barry Goldwater raised nearly $6 million through the mail for his 1964 campaign. In 1972, Democrat George McGovern raised a staggering $25 million through direct mail. During those years, the man largely credited with pioneering the direct mail fundraising industry—conservative Richard Viguerie—started building his lists.

Viguerie’s efforts picked up steam after Goldwater’s loss in ’64. The clerk’s office in the House of Representatives had a donor file that contained the names and addresses of those who had given more than $50 to any federal candidate, so Viguerie started copying them by hand. He ended up with most of Goldwater’s 15,000 donors before the clerk kicked him out. After founding his own direct marketing firm, Viguerie spent years growing his donor lists and by the late 1960’s he had more than 150,000 names. “I caught a lot of criticism at the start,” Viguerie says. “It takes a while to reap the benefits of direct mail and people didn’t understand that in the ‘60s and ‘70s.”

The biggest reason for the criticism: Viguerie’s costs were high. “He was criticized a lot mainly because other groups just couldn’t afford it,” says Roger Craver, a direct mail pioneer on the Democratic side of the aisle. “But he had a very transparent process. It’s not like there were hidden costs.” Viguerie’s mail programs weren’t run with efficiency in mind—they often created large debts that had to be recouped through continually mailing the client’s donor list.

In the mid-’70s, Viguerie’s firm launched a direct mail effort for the National Right to Work Committee. The group was fighting a legislative effort led by Democrats and organized labor to allow something known as “common situs picketing.” It would have made it easier for striking trade unions to disrupt construction projects. President Ford promised to sign the bill if it reached his desk, but a massive direct mail effort led by Viguerie was credited by many with changing the president’s mind and Ford vetoed the bill.

“A lot of unsophisticated people looked at it and said, ‘You spent a million dollars and only $750,000 came back? What a rip-off,’” Viguerie says. “But that’s not the point. Not only did we defeat the legislation, we picked up 80,000 donors for the organization. Over the past 30 or so years, that has meant $50, $60 million or more for them.”

Craver faced a similar problem raising money via direct mail for gay rights groups in the ‘70s. It was such a divisive issue at the time that response rates were exceedingly low. That meant Craver had to send a higher volume of mail in the search for responsive donors—a process known as prospecting. “The practice of spending what is raised or even more than what is raised in the early stage of the campaign is standard practice,” Craver says. “At the start, breaking even is great.”

As the direct mail fundraising industry has grown, that’s one thing that hasn’t changed much, and it’s the first hard reality of fundraising through the mail: The start-up costs can be enormous.

“There’s no question that building a base of new donors is a process that oftentimes requires you to invest much if not all of the proceeds for that initial prospecting,” says Chuck Pruitt, a partner at the Democratic firm A.B. Data. Pruitt’s firm raised some $103 million in direct mail contributions for President Obama’s 2008 campaign. “Once you’ve attracted new donors to the campaign, they are going to end up being highly profitable in terms of producing net dollars for the campaign’s purposes.”

For a candidate campaign with absolutely no direct mail donor base, here’s the basic process: It starts with the creative—determining what your candidate’s story is and structuring the appeal to donors. Next comes the costly part—prospecting. The goal is to build the campaign a “house file,” which is a list of donors who are proven responders to the campaign’s fundraising appeals and can be solicited again and again over the course of a campaign, or in the case of an incumbent politician, cycle after cycle.

Depending on the campaign’s message, the direct mail firm will decide which lists to prospect. There are thousands of political donor lists for rent on the open market. Before committing to large-scale mailings a firm will typically send a series of test mailings to segments of certain lists. Based on response rates, the vendor will decide which lists to include in a larger scale mailing, and the construction of a house file begins. Ideally, a campaign with no file and no base of direct mail donors will begin a program somewhere between 18 and 24 months out from Election Day. Starting a direct mail effort without enough time to properly prospect and test mailings is a disaster waiting to happen, say direct mail consultants. (Some often-repeated advice: If you’re not confident you can move the program from a net loser to a net winner by the time the campaign needs to spend some late cash on media and other expenses, you shouldn’t even begin the program.)