Spend to Grow
Rule of thumb: A catalog company can’t break even on the initial orders generated from prospects. Catalogers must be willing to invest to acquire new buyers to grow, or at least maintain, their 12-month buyer count.
This month, I’ll cover the cost to acquire a new buyer, why it’s important to invest in prospecting and why you shouldn’t expect to break even on the initial order.
Catalogers tell me they don’t want to prospect below the incremental break-even point. That’s a nice goal, but it’s not realistic. Today’s economics, such as postage costs, paper prices, etc., combined with lower response (an ongoing trend that results mostly from list fatigue), are the main reasons catalog companies can’t break even on the initial order mailing to outside rented lists — and that includes the co-op databases.
Typically, a few lists or database segments will break even or better. But the universe size from these top-performing lists won’t be large enough to generate the desired number of new buyers required to grow or maintain file sizes. Therefore, to grow your 12-month buyer file other lists and/or database segments that perform below breakeven will need to be part of your circulation plan. It’s simply a fact of life and a part of the cost of doing business today.
Invest in Growth
Not investing in growing your housefile can negatively affect your business and future growth. At the same time, overspending to acquire new buyers and trying to grow too fast can lead to financial ruin. It’s the balance of mailings to your housefile vs. prospects that’s important to long-term success. The size and financial performance of your housefile really is what determines how much prospecting you can afford to do.
There always are customers who elect not to purchase again. They may not be pleased with your service, or they purchased based on a one-time need, or a specific promotion caused them to buy once, and so forth. At a minimum, replace those customers who elect not to buy again with fresh buyers so your 12-month file doesn’t decline.
