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.
* Conversion rates — the ratio of leads to orders.
* The return on investment (ROI) that new customers generate. How slowly or quickly do those new customers pay back their media costs? The same as a typical ROI payback analysis, including how many catalogs are mailed to this customer?
* The lifetime value that customer generates, starting with single- to multibuyer ratios. Do you get a lower or higher percentage of second orders from this two-step program over other programs? Over list rentals?
In the basic two-step lead generation model, all expenses are factored into the P/L. The print/media costs are added to catalog mailing expenses to get a true read of customer acquisition costs.
Next week, in the third part of this series, I’ll dive into each media type, discussing some of their strengths and weaknesses. In future parts, I’ll examine how to construct your creative approach and execution, and the strategy/psychology behind how and when the creative is built.
If you have any questions on the math, e-mail me at email@example.com or post a question/comment below.
Speak to you next week.
Jim Gilbert is president of Gilbert Direct Marketing Inc., a full-service catalog and direct marketing agency. His LinkedIn profile can be viewed at www.linkedin.com/in/jimwgilbert or you can post a comment here or e-mail him at firstname.lastname@example.org.
Jim Gilbert has had a storied career in direct and digital marketing resulting in a burning desire to tell stories that educate, inform, and inspire marketers to new heights of success.
After years of marketing consulting, Jim decided it was time to “put his money where his mouth was" and build his own e-commerce company, Premo Natural Products, with its flagship product, Premo Guard Bed Bug & Mite Sprays. Premo in its second year is poised to eclipse 100 percent growth.
Jim has been writing for Target Marketing Group since 2006, first on the pages of Catalog Success Magazine, then as the first blogger for its online division. Jim continues to write for Total Retail.
Along the way, Jim has led the Florida Direct Marketing Association as their Marketing Chair and then three-term President, been an Adjunct Professor of Direct and Digital marketing for Miami International University, and created a lecture series, “The 9 Immutable Laws of Social Media Marketing,” which he has presented across the country at conferences and universities.