Find New Customers, Without Breaking the Bank
It is imperative to determine the lifetime value of customers by source. Robert Hackett, RRD Direct’s vice president of sales, provides the following formula:
Lifetime value is a function of frequency of purchase, multiplied by the gross margin, multiplied by the duration of brand loyalty.
What can you afford to pay for a new customer? To make that determination, Gary Hennerberg of the Hennerberg Group suggests you take the following steps:
• Research customer lifetime value.
• Calculate every imaginable fixed and variable cost associated with selling your products, including cost of goods sold, inbound 800 number costs, business reply mail, postage, fulfillment, returns prospecting, etc.
• Establish a profit objective. If, for example, it is 20 percent of net sales, subtract that number from your contribution.
• The number remaining is your allowable marketing cost. Divide that into your cost per thousand, and you’ll learn how many orders per thousand you need to meet your objectives.
As Peter Rosenwald, author of the new software program offered by The Direct Marketing Association that enables marketers to understand their allowable cost per order, says, “Profit must be treated as a cost of doing business.”
While you’re at it, suggests Hennerberg, analyze your response by media month. Clearly, if you lose big money on April promotions, don’t promote in April.
Next, you want to circumvent the killer cost of old-fashioned catalog prospecting: renting cold lists, paying postage and sending out catalogs at $750/M to $1,000/M or more.
Abacus & Other Co-Op Databases
A co-op database is made up of the transactional and demographic data of a group of catalogers’ hundreds of millions of transactions, and tens of millions of buyers. Membership in the co-op enables catalogers to build a model of their best, most profitable customers and to find more like them.