Formulating a B-to-B Catalog Mailing Plan, Part 1
Calculating customer acquisition costs and devising a profitable mailing plan are forever a challenge, regardless of the economic conditions or changing consumer buying habits. During last week’s MeritDirect Co-op in White Plains, N.Y., the list firm’s vice president of database strategy Dan Harding helped to provide some of that strategy. Included below are some of his tips.
1. Avoid acquisition costs as a lone decision-maker. Figure out your future profitability costs in relation to your overall costs and the various categories of cost, Harding said. Knowing your future profit overall won’t help much, but you can divide your costs into 10 categories (such as company size, acquisition cost, etc.) to help rid yourself of certain categories of cost — or to try to fix them. The goal is to have future profit exceed acquisition costs.
2. Dealing with customer attrition. First year attrition is usually 30 percent to 55 percent (the percentage of customers who don’t make a second purchase). How do you get this number down? Mail more often, offer better deals, Harding told the audience. Why is this so important? Because a five percent reduction in annual attrition increases average lifetime value by 25 to 35 percent. This is a crucial way to define success with any customer mailing program, he said.
3. Have your finances in order. Harding listed several key financial factors for successful catalog mailing, including budgeting for the cost of new customers vs. existing customers, properly charging overhead customer costs, not customer acquisition costs; and crediting prospecting budgets with gross margin dollars from new customers. What’s more, since prospecting costs are expensed immediately, the government is, in effect, matching your prospecting costs with a tax reduction, he pointed out.
4. Create a different prospect catalog. Harding advised several techniques to do this cost-efficiently. These include, removing minor products, including only “first order” products, doing more to explain and demonstrate key products, considering staying under 3.3 oz. to save in postage, testing an incentive offer on the front cover and regular price cross outs. A smaller prospect catalog can sometimes reduce acquisition costs by 25 percent or more, he said.
5. Allocate your space wisely. Determine the total mailing cost per product of your active customers, Harding said. Require products to deliver 1.5 times their mailing cost in gross margin dollars (average should be 2.5-plus). Those below 1.5 have space reduced or get dropped from catalog. Conversely, increase space for strong products. Some techniques include double presentation, adding similar products, multiple photos (product in use, cut-aways), extra copy and comparison charts.
6. Determine acquisition products. Test this by only running the first order from every customer to see what products are on these orders and what revenue they generate, Harding said. Then run another catalog, which excludes first orders. Compare the results to help you show if you have an acquisition product or not.