Get the Most From Outside Lists

Because it’s expensive to prospect for new buyers, it’s important to prospect as cost efficiently as possible.

Prospecting is critical to the long-term success of any catalog business. How much prospecting you do depends on how fast you want to grow your customer file. Too much prospecting will negatively impact your bottom line. But too little isn’t good either.

The goal is to maintain a balance between mailings to your housefile and to prospects. Every housefile has a certain attrition rate. Prospect so you’re at least replacing the customers who’ve decided not to buy.

This month, I’ll review basic, proven ways to get the most from outside prospect lists.

The Increments

Most prospecting is done at an incremental loss. It’s not until those first-time buyers make second purchases that you go from red ink to black. Think of prospecting as making an investment in your business. Catalogers find themselves having cash-flow problems when they try to prospect too aggressively.

More than 20 years ago, I heard an experienced cataloger define a buyer versus a customer: A buyer is someone who purchases one time; a customer is someone who purchases more than once. You need buyers before you can create customers who will make repeat purchases and pay the overhead expenses of your company.

Effective prospecting must be evaluated on incremental expenses, not fully absorbed. That is, results from prospecting can’t be expected to cover overhead expenses. Rather, results from mailings to your housefile must do the job.

Obviously, all mailings can’t be considered incremental. Rent, wages and utilities must somehow get paid. But again, your housefile must be large and strong enough to cover these expenses. When prospecting, try to recover only your out-of-pocket expenses—that is, your incremental expenses. Bear in mind, this is difficult to do.

The Breakeven Analysis chart (page 47) shows that you must generate $1.41 per catalog mailed to achieve incremental breakeven. This example includes returns and allowances, cost of goods sold, direct selling expenses and variable order-processing costs of $5 per order. The analysis is based on mailing a 64-page catalog (weighing 3.9 ounces) to 1 million prospects.

In this example, the goal is to generate $1.41 per catalog from prospecting. While this is a good goal, it’s difficult to achieve overall. Some better-performing lists generate more than $1.41 per book mailed, but to achieve this as an average is unlikely. Therefore, you’d have to “investment spend” to grow your business and protect its future. How low you go below your goal depends, of course, on the financial strength of your company and on how fast you wish to grow.

The Countdown

Of course you want to do everything possible to increase your revenue per catalog mailed. And improving the performance of outside lists will help. The following are 10 proven strategies to improving your revenue per catalog mailed:

1. Start by using proven direct-response lists. Product affinity is the most important factor when determining which lists to use. Select lists that mesh with your offer. Be careful using subscriber and/or compiled lists (unless you’re selling business-to-business). For consumer mailers, subscriber and compiled lists must be optimized prior to mailing. You’ll get the best results from proven mail order buyer lists whose product offerings are compatible with yours.

2. Select the most-recent prospects to mail. Selecting prospect names based on the date of their last purchase (recency of purchase) will yield the best results. Someone who purchased within the past three to six months, for example, is a better prospect than someone who purchased more than a year ago. The more recent their last purchases, the better they’ll be as prospects.

3. Select Abacus Extranet names. If you transfer your buyer file to Abacus daily via its Extranet program, you’re entitled to mail Extranet names on its database. These are the most-recent names available for mailing on the Abacus Alliance cooperative database. Tip No. 2 (above) applies here, too. These recent mail order buyers profiled, selected and modeled by Abacus should perform at or above your best lists and list segments.

4. Use other selects such as monetary value. This will help you match the dollar ranges prospects usually spend in relation to your typical average order value (AOV). Let’s assume your AOV is $65. By using a dollar select and eliminating the small dollar purchasers, you’ll see an increase in the revenue per catalog mailed. If you don’t request a dollar select for the list you’re renting, you’ll get a cross section of small- and large-dollar buyers.

5. Always start with a small test quantity. Keep in mind that a minimum of 100 responses is needed to properly read the results. Therefore, if your typical response rate to prospects is 1 percent, mail (net) 10,000 names. The lower your rate of response, the higher the quantity of names you’ll want to test mail. This is important when you decide to roll out a particular list. There’s a greater likelihood the results will hold up if your initial mailing is structured properly, assuming you have enough responses.

6. Pyramid the quantity on subsequent tests. Increase the quantity of any one list cautiously. If you test 10,000 names with a great deal of success, mail 20,000 names the next time. Assuming the results hold up, then go to 40,000, and pyramid up from there. Resist the temptation to take too many names of any given list based on the results of the initial test.

7. Use cooperative databases. Use all of the co-ops. Yes, there will be overlap, but each co-op will identify names worth mailing based on their modeling that another co-op might not find. Suggestion: Let the model do the work to select the variables. The computer model usually knows best.

8. Use marginal list optimization. This will improve performance and increase the revenue per catalog mailed. There are two ways to use list optimization: selection and suppression. Usually both techniques use 10 percent to 20 percent of a given file.

• The selection method is used for pre-merge lists. With this technique, you can use a compiled or subscriber file to capture affinity, then use optimization to select the top 10 percent to 20 percent of the known catalog buyers.

Example: For a golfing catalog, you might request 100,000 active subscriber names to optimize. For this universe, you can select the best 20,000 (20 percent of the gross input) to mail.

• The suppression method is used post-merge to identify and suppress the rental singles. After the merge, you can optimize the rental singles and suppress the worst-scoring 10 percent to 20 percent. This method should yield a 5-percent to 15-percent lift. (It’s always good to mail a 5,000 to 10,000 back-test cell to monitor the suppression results and measure the exact lift you achieve.)

9. Exchange lists whenever possible. This reduces your outside list costs and helps lower your

incremental break-even point. By reducing your variable or incremental breakeven, your revenue-per-catalog-mailed goal also will be less. A greater number of names will qualify for mailing as a result.

Caution: Don’t exchange names with firms whose lists are marginal to your offer. List exchanges for the sake of list exchanges aren’t good.

10. Keep track of who is using your list. Keep good records and pay attention to which companies continue to use your list. Chances are their lists will work for your offers, too. This reduces your risk and helps maximize revenue per catalog mailed.

Look at what can be done to reduce your in-the-mail catalog costs. The less your direct selling expenses, the less your incremental break-even point. And the less that is, the more prospecting you can afford to do.

Stephen R. Lett is president of Lett Direct, a catalog consulting firm specializing in circulation planning, forecasting and analysis. He can be reached at (302) 541-0608 or by e-mail at slett@lettdirect.com.