How do You Generate New Customers? Do the Math First! Part 2

In the second part of this series on tips for catalogers looking for useful ways to bolster their housefiles with prospect names, this week I examine the relevant metrics needed to evaluate an effective prospecting technique.

(For part 1, click here.)

Let’s discuss the concept of measurability — making sure the channels you choose for customer acquisition are analyzed and tested thoroughly before roll out. I implore you to seek the advice of qualified professionals to help you build break-even analyses and pro formas up front, and lifetime value analyses on the back end. While you’re likely to add a new channel that becomes a profit center, I’ve seen disasters happen when the numbers are ignored.

Take Advantage of Resources
There are many resources to help you calculate these metrics — from this Web site, its weekly newsletter and monthly magazine to the media brokers you choose to outside consultants. There are great books on direct marketing that teach you the math side of the business, as well. During my education in the business, my professors at New York University stressed direct marketing math. So I read every direct marketing book I could find that had analysis chapters. I then used Excel and recreated the spreadsheets for practice.

Why Stress the Basics?
Many of the channels that you can add to your mix are geared for lead (catalog request) generation. These metrics differ from those of catalog circulation and direct sales. You’ll need to measure more than just cost per name (the cost of generating a new customer, sometimes called cost per acquisition) and/or cost per order. In lead generation, you have a second step to factor in: the cost of generating a lead. On a P/L basis, consider the following factors.

* The cost of the media used to generate the lead/catalog request.