Higher Positions Usually Cost More

Targeting your ad copy is a powerful lever: It can raise your ad efficiency by increasing your qualified clicks, so you grow sales in a way that’s cost-effective.

But higher positions usually cost more. And there’s no guarantee that a high click-through rate leads to more sales: If traffic coming from a link doesn’t convert into sales at a high enough rate, the high click through rate is bad news, leading to ad cost out of proportion to corresponding sales, creating an economic loss.

A Better Way to Get Qualified Clicks

Instead, you can increase your qualified clicks by targeting your ad copy. (And Google’s position algorithm takes into account relevancy as well as maximum bid,: so if your copy entices clicks, you’ll climb the page while controlling expense.) The person searching who sees your advertising copy should know exactly what they can expect to see when they click on your ad: hopefully, they should reach the exact product they’re seeking.

Relevance is the critical concept here: getting the copy (and the landing page) right can increase the economic efficiency of your campaigns by 10% or more.

Think Small and Think Hard

Advertisers familiar with the search engines’ character limits don’t have the luxury of writing long. The opportunity is to turn these limits to your advantage. Use them to hone your ability to craft copy that cuts to the chase.

If you’re responsible for your company’s advertising, can you describe why a prospect should buy from you - in three compelling phrases? Can your search provider explain what makes them special - in seventy characters or less?

When you chisel away at your prose, chisel carefully. While you can update copy frequently, there are trade-offs: Google, for example, will start each new ad at a position determined by a set relevancy rating, so new copy means you could drop in position.

Listen” and Repeat

We’re all familiar with the idea that good communicators actively listen and then reflect back what they heard. The same principle applies when crafting advertising copy. Wherever relevant, “echo” the actual search phrase in your copy. Google rewards this “echoed” text with bolding, so to get the most out of this benefit, echo the key terms in the title.

What, exactly, will the visitor encounter when they reach your web site?

When a user searches for “blue-striped widgets,” they’ve said “I’m interested in a subcategory of widgets.” Your copy should respond with your blue widget products and services, rather than trumpeting your laundry list of offerings. Echoing the search phrase qualifies your prospect and gives him the confidence that you understand his need. Identifying specific benefits relevant to the phrase gives the prospect reasons to click.

Consider these two Google ads for the search-phrase “blue-striped widget”:

Blue-striped widgets Buy today at Widget World Great prices and selection www.widgetworld.com

Blue-striped widgets Odd sizes, many patterns Free womble with all widgets www.widgetworld.com

Beyond the first line, the first ad is generic and could easily describe any product or retailer. By contrast, the second ad indicates the retailer’s knowledge of the product and offers a specific reason to purchase. It earns the click.

Say No to Surprises

When you build your keyword list, savvy retailers use Google and Yahoo’s “negative match” and “keyword exclusion.– the features that ensure a marketer of light bulbs won’t serve ads to shoppers searching for tulips.

Keep similar thinking in mind as you develop ad copy. If you want to turn a click into a sale, “no surprises” is among your mantras. Eliminate any ambiguity. If there are exclusions in your selection, make that transparent.

If your prices are exceptionally high — but for good reason – make that clear, too: When searching for house numbers recently, we came across an ad for artisan letters touting the $100 / letter (!) price. That’s a smart way to cut down on unqualified visits and reach out to a shopper with the taste and budget for the unusual. Remember, you pay for every click but only want the ones that generate sales.

Great! Now Repeat 10,000 times

You’ve written the ideal Google ad: In seventy characters or fewer, you’ve reflected the prospect’s search phrase in your ad title, you’ve noted the relevant products and services your company provides, and you even managed to mention a special offer germane to the prospect’s search.

But wait. In an earlier article, when we discussed the importance of effective keyword lists, we suggested that a site selling 2,000 products could easily generate 20,000 terms.

Just when you’ve completed sales poet boot camp, hand-writing those ads (all 20,000 of them!) is looking a bit daunting.

You Need Some Rules

Work with your internal IT team or your search provider to develop logic that builds your ad copy systematically. A well-designed, efficient system carefully mates keyword to ad copy to relevant offers- en masse.

Establish rules that parrot back the search phrase. Map special offers to individual product categories and then use a hierarchy of rules to ensure that your ads default to generic offers (like free shipping) only when no specifics are available—or when dictated by the competitive landscape.

With targeted ad copy deployed across a broad term list that’s tied to unique tracking codes, your search engine marketing program is poised for success.

The Danger of Marketing by the Averages

We kicked off our SEM Top Ten with a look at how to effectively Grow Your Phrase List. We recommended testing between two and ten phrases for each page on your site.

With as many as 20,000 unique phrases for a 2,000 product site, tracking is key. To manage your program with precision, you’ll need a unique tracking code for each one of your paid search ads.

While averages and aggregates are useful indicators of the overall success of your marketing efforts, they can be deceptive.

Driving programs by the averages without the appropriate drill-down can hide opportunity, mask poor performance and lead to unwise investments. Just as no Circulation Director would manage the next mailing based on the aggregate performance of the last book, segmentation is central to maximizing sales and profitability in SEM.

Let’s say that as chief marketer at WidgetWorld you’ve set the target advertising to sales ratio (A/S) for paid search at 20%. Your most recent reports show that your overall program is hitting that number. Do you thank your online advertising manager (or search provider) for a job well done and move on?

Well, maybe. The answer depends on how you hit your target, on how precisely you can read and respond to the economics of each ad you are running.

Assign a Unique Code to Each Ad You Run

Suppose WidgetWorld sells widgets, wombles and wodgets. And suppose wombles have a higher selling price than your other two product categories. Maybe they also offer more favorable margins.

If the A/S for wombles is at 15%, you’ll leave money on the table if you’re complacent about your program’s overall A/S of 20%. Worse, what if the overall 20% is achieved not only by under-investing in the winners but also by over-investing in the losers?

You need to monitor the ROI of each ad. That starts with precise tracking.

Assign a unique tracking code to each distinct ad you run. The code should uniquely describe a distinct combination of phrase, search engine, destination url, and ad copy.

Never recycle your codes. To do so ignores the shelf-life of your cookies as well as the multiple visits a prospect may make to your site before placing an order.

Integrate with Your Site Analytics Program

A complete search marketing program includes precise matching of landing pages to ad copy and search phrases. Targeting and tracking these elements separately allows you to profit from the comprehensive and accurate A/B testing that is the core of direct marketing.

Make sure your SEM tracking integrates with your website analytics program. If two product categories show identical clickthrough rate but markedly dissimilar conversion, your site analytics program can reveal how successfully each category’s landing page passes visitors to your shopping cart.

While setting up and maintaining a comprehensive set of tracking codes can be laborious, these codes provide the detailed atomic data you need to “slice-and-dice” your performance reports: by brand, product category, ad copy, destination page, special offers - and any other variables significant to your profitability.

It’s this detailed analysis that allows savvy marketers to optimize their campaigns and run search programs that meet their economic goals.

,p>This article from the 10 Best Practices for Paid Search Marketing series by Alan Rimm-Kaufman and Lawrence Becker first appeared in the June 15, 2005 e-mail newsletter of Multichannel Merchant.

Test Between Two and Ten Phrases for Each Page

Search engine marketing is often correctly described as complicated. But as the saying goes “where there’s complexity there’s opportunity” and the principles that lead to successful SEM are actually quite simple. Over the next ten weeks, we’ll walk through a Top Ten list of SEM best practices. This week we’ll look at how to Grow Your Phrase List.

The heart of a successful paid search campaign is a well designed, comprehensive keyword list. How many phrases or keywords you need depends on the nature of your business and the size of your product assortment. As a rule of thumb, we recommend testing between two and ten phrases for each page on your site. So if you sell 2,000 products, we recommend testing 4,000 to 20,000 unique phrases.

Yes, that’s a lot. Here how to get there

How To Develop The Phrases

Develop phrases for each of your product pages. Don’t forget misspellings and alternate forms. Tip: Mine your site’s internal search logs, including the “not found” list.

Develop phrases for each of your product category pages. Let your website’s navigation guide you and be sure that you hit every level of the drilldown. Tip: This is also a chance to informally audit the language you use on these labels. If you encounter wording that doesn’t sound like the way a customer would describe your product, change the language. This will make your site more appealing to customers as well as natural search spiders.

If you sell branded products, develop phrases for each of your vendors’ names, and their brands. Develop phrases for your item numbers, and your vendor item numbers, if these SKUs are in common use.

Think about the possible problems solved by each of your products or services, and develop related phrases. This is a good way to meet the prospect for whom you are a great match but is unaware of your name or your vendor brands.

Before you launch your list, make sure you have appropriate rights to use any trademarks, registered marks, or copyrighted terms.

Introduction

Interested in tuning your e-commerce site to increase your conversion rate?

In this article, we’ll present steps to help your site sell more. Large online retailers seeking to improve their sites can afford substantial investments in sophisticated analysis tools and costly usability consulting. Smaller retailers often can’t.

This article aims to help folks seeking to tune sites “on the cheap.” Read on for low-cost high-impact ideas on increasing your site conversion.

List, Offer, Package

Let’s start with expectation management.

There’s an old rule of direct mail that says the three key elements for success are, in descending importance, “list,” “offer,” and “package.” “List” means having a large universe of high-quality prospects. “Offer” means having a good selection of relevant merchandise, fairly priced, with a solid value proposition. And “package” means a clear and compelling marketing vehicle, with strong copy and design.

While all three elements are important, “offer” trumps “package” and “list” trumps “offer.”

That is, if you want to double your web sales, the fastest and most cost-effective way to do it is to double the number of visits from qualified prospects. Your next best option would be improving your offer: broadening your selection, sharpening your prices, and improving your value proposition. Optimizing the “package” - that is, the site organization, layout, and usability - comes in third.

So should you worry about conversion at all, or just focus on driving more visits? Both are essential. Even coming in third, how your site looks and operates is important. Tuning the site helps you extract full value from all your hard-won inbound traffic.

Disclaimer finished, we begin.

Method

Here’s a generic four step process for tuning your site.

1. Determine what on the site might need improvement.
2. Come up with an alternative page or pages making that improvement.
3. Run an A/B test to compare the alternative to the control. If the alternative is significantly better, roll it out.
4. Repeat.

Step 1: What on your site needs improvement?

You may already know some of the trouble spots on your web site after listening to comments from customers and employees. You may also note weaknesses on your site after surfing and shopping from your competition. And recall Neilsen’s “Law of Web Usability”, which states your visitors spend most of their web time not on your site - pay special attention where your site uses atypical navigation or layout.

As a rule of thumb, the four most important components of an e-commerce site are the product page, the site search, the cart, and the home page.

Running “discount usability sessions” is an inexpensive approach for finding possible improvements to the important components of your site.

Discount Web Usability Testing

“Discount usability engineering” (a phrase coined by web guru Jakob Neilsen) is a great way to determine what on your site trips up your users. You can read more on this method at Neilsen’s site, useit.com. Here’s a quick overview.

Recruit five local web users who are not familiar with your site. Pick folks who resemble your target demographic. Schedule five 45 minute sessions on the hour, one for each user. Offer each user a modest thank-you gift for participating: a gift certificate or cash. Pick a friendly person in your organization who’s comfortable with the web to serve as your moderator. Don’t pick someone who works on your site. Prepare a quiet private room with a computer and a video-camera. Have the moderator welcome each user and introduce the exercise:

“Welcome, Mary, thanks for coming in. My name is Lisa. As I described on the phone, we’re watching people use our site so we can try to make it better. I don’t work on the site myself, so don’t feel bad saying if you find something that’s confusing. All your comments, good and bad, are helpful to us. If OK with you, I’ll videotape our session; that will help me later with my notes. This session will take us no more than 45 minutes.”

The moderator then asks the user to complete a task on the site, sharing their thoughts as they go.

“Ready, Mary? Great! I’d like you to shop for and purchase a gift for an out-of-town friend using our website. You’d like to spend around $75 on the gift. As you use the site, if you could share what you’re thinking and expecting, that’d be great. Before clicking a link or pushing a button, please tell me out loud what you expect to happen next - what sort of page will come up, what you’ll see, etc. Make sense? Excellent! So let’s begin. What are you thinking when you see the homepage? Where would you click first? Why? And what do you think will happen after you click? ”

The moderator should take notes, detailing where users stumbled and where the site didn’t do what was expected. The moderator will need to encourage users to keep sharing their thoughts; but the moderator shouldn’t lead the users.

The goal of discount usability sessions isn’t quantitative statistics - it makes little sense to compute statistics on a sample of five. Rather, you’re seeking trends and “Aha!” insights. The insights needn’t be earthshaking, just places where many of your users hesitate or stumble.

Here are three examples of modest “aha!” insights seen in different usability sessions:

• On the “view cart page”, below the table showing cart contents, there were three buttons. The buttons read, from left to right, “Checkout”, “Continue Shopping” and “Empty Cart”. In testing, multiple users instinctively hit the rightmost button to continue, unintentionally purging their cart.
• The product hierarchy included “Sale Specials” as a product category. As a result, once a certain dress or top was placed in the sale area, it no longer showed up under the “Women’s” category. Users expected to find sale items alongside the other dresses, and thus couldn’t find them.
• The product page displayed a grid of color swatches below the large item image. When there were more than three color options, the grid pushed the copy block, the price, and availability “below the fold” on a standard browser.

Advice: when running usability sessions, don’t use your achingly fast T3 connection and your web designer’s gigantic display. To mimic reality, users should experience your site on a dialup (or slow DSL) using a regular size screen.

Step 2: A better alternative

Once you’ve identified a possible site problem, the potential solution is often clear. (”Remove the ‘Empty Cart’ button altogether, move ‘Checkout’ to the right-most spot and make ‘Checkout’ more prominent.” “Make sure sale items also display in their original category.” “Move the copy block up to the right of the image and move the grid below the image, so price and copy are always visible without scrolling.”)

Testing is expensive, so make sure only to testing changes significant enough to matter. Testing whether your navigation should be light blue or light green probably isn’t worth it. Testing a single large “hero” product homepage treatment versus a top-selling product grid treatment probably is worth it.

Step 3: Running an A/B test via the “Day Swapping”

Is your new idea better than what you’re currently running? Only testing can say for sure.

Larger retailers can build or buy expensive software to run multiple versions of the site simultaneously. Such packages randomly assign visitors to the control or the alternative treatment, ensure a visitor experiences the same treatment consistently throughout their visit (and on subsequent visits), accumulate data for analysis, and report on results.

With a little work, a smaller retailer can gain much of this benefit without needing the costly software via a 7 day “day swapping” test. Here’s how.

Build two versions of your page in different files. For example, for testing your homepage, you would create “index-control.html” (a straight copy of your current homepage, “index.html”) and “index-alternative.html” (a new page implementing your new idea.) For testing design and layout on a CSS site you would make two versions of your stylesheet: “style-control.css” (a copy) and “style-alternative.css” (new). For testing the cart, you would make two versions of the cart script: “checkout-control.asp” and “checkout-alternative.asp.”

Create simple scripts to copy one of the versions onto the live page. For example, if you were doing a home page test on a Unix or Linux platform, these two trivial bash scripts would perform the copy (after adjusting filenames to match your server configuration):

make-control-active:

#/bin/bash
# script one: make the control active
cp /var/www/public/index-control.html /var/www/public/index.html

make-alternative-active:

#/bin/bash
# script two: make the alternative active
cp /var/www/public/index-alternative.html /var/www/public/index.html

Monday morning at 9am, run the “make-control-active” script. Tuesday morning at 9am, run the “make-alternative-active” script. Repeat this process for two weeks, alternating each day. (You can automate this with a scheduler like “cron” or “at”; otherwise, bribe your system administrator with donuts.)

Analyzing A Day-Swapping Test

At the end the 14 days, collect daily metrics for the period: site sales by day, average pages-viewed-by-visitor by day, etc. Create a spreadsheet for each metric by day of week, noting how many times the alternative beats the control. Here’s an example:

	Site Sales
	Control	Alternative	Alternative better?
Monday (June 6 & 13)	$ 4,384	$ 4,514	YES
Tuesday (June 7 & 14)	$ 4,453	$ 4,713	YES
Wednesday (June 8 & 15)	$ 4,315	$ 4,640	YES
Thursday (June 9 & 16)	$ 4,536	$ 4,866	YES
Friday (June 10 & 17)	$ 4,577	$ 4,547	no
Saturday (June 11 & 18)	$ 3,900	$ 4,197	YES
Sunday (June 12 & 19)	$ 3,719	$ 3,676	no

As a rule of thumb, if the alternative beats the control 6 or 7 days out of the 7 day-pairs, it is significantly better. If the control beats the alternative 6 or 7 days out of the week, the alternative is significantly worse. (For stats enthusiasts, this is a non-parametric sign test with alpha at 15%).

This simple design sidesteps day-of-week effects (due to the matched design), season sales trends (due to the alternation), and outliers (the non-parametric test doesn’t place undue emphasis on the occasional huge order). This design works best for retailers who close a large fraction of their sales on a customer’s first visit, rather than for retailers who typical experience long delays between visit and order.

For more statistical power, you could run the test longer. If you ran the test for four weeks, you would still alternate day by day (more donuts!), comparing the first Monday to the second Monday, the third Monday to the fourth Monday, and so on. After four weeks, you would claim the alternative the winner if it beat the control on 12, 13, or 14 of the 14 day-pairs, and claim the alternative a loser if it beat the control only 0, 1, or 2 days of the 14.

You might feel these cut-offs are too rigorous, and that it would be very hard to find a new alternative that performed so strongly.

Yes. It will be hard. You will find that many of your tests yield indifferent results, with the alternative neither provably worse nor provably better than the control. Sadly, that’s the reality of trying to better a reasonably good website.

Expect indifferent results 4 out 5 times. Have patience and keep on trying - have faith that through smart ongoing testing, you will eventually “crack the code” and find something that really does improve your site conversion.

Since finding changes that yield statically significant sales increases is challenging, consider proxy metrics as well. Suppose your alternate design did not provably increase site conversion (but also did not provable harm it), but did provably increase average time spent on site and average number of pages viewed. That’s compelling evidence to roll-out the change.

Conclusion

You work hard to get visitors to your site. Using the one-two punch of discount usability sessions followed by A/B testing, with some luck and a good deal of patience you can increase site conversion. Now’s the ideal time to start, so you can have your site in better shape for the holidays. Good luck!

Introduction

Clients have asked us here at the Rimm-Kaufman Group,

“How fast will my catalog business grow?”

We respond that growth depends on new customer acquisition and on the health of your 12 month housefile. By “12 month housefile,” we mean the list of all customers who have bought from you within a year.

We thought this article by Stephen Lett does an excellent job explaining the importance of the 12 month file. With Steve’s permission, we’ve reprinted his article here. Steve has no formal relationship with the Rimm-Kaufman Group, save that we respect his work and writing.

We hope you find Steve’s insights useful.

Success Depends on the Growth of Your 12-month Housefile

The rate you can grow your business depends on the increase in your 12-month buyer file.

If your housefile is growing, your revenue likely will increase, and vice versa.

No doubt you pay a lot of attention to your catalog’s daily and/or weekly demand report. Is it up from last year? How does it look against budget?

But you probably don’t pay enough attention to the increase/decrease in your 12-month housefile.

In this article I’ll examine why this file is critical to your growth rate. And I’ll offer strategies to grow your file and explain what it means if you don’t.

Your Revenue Growth Will Track Your Housefile Growth

Here’s a rule of thumb:

Your revenue growth, expressed in percentage terms, will follow the growth of your 12 month house-file, also expressed in percentage terms.

This means if you grow the file by 10 percent, your revenue also should increase by about the same percentage. The change in your 12-month buyer file is a key indicator as to how well your business is doing.

So if you focus on adding new buyers and bringing previous buyers forward into a more recent RFM (recency, frequency and monetary value) cell, your business will grow.

In the following chart, “Consumer Catalog Housefiles”, I compare the 12-month buyer counts for 10 consumer catalog companies on Dec. 31, 2003, vs. Dec. 31, 2004. Also shown: the percentage increase in order/revenue demand for the same time period. Note the relative consistency of the growth percentage compared with the increase in number of buyers added to their files.

In the example, the 12-month buyer file increased from 65,839 to 92,844, or about 41 percent.

This large increase resulted in a 35 percent growth in the order/revenue demand. (Again, these are averages from 10 companies.)

Predicting Your Revenue Growth

When comparing your own housefile-growth rate, it’s best to compare the same time periods if possible, thereby eliminating the seasonality factor.

For example, determine the buyer count on Dec. 31, 2004, compared to Dec. 31, 2003; or Feb. 28, 2005, vs. Feb. 28, 2004. Always pull your numbers from the same point in time, if you can.

This rule of thumb assumes your average order values (AOVs) remain fairly constant.

A change in AOV, for example, will cause the rule not to hold true.

For example, the 12-month housefile depicted in the chart “One Cataloger’s Housefile and Demand” increased almost 39 percent, yet the demand increased 25 percent. The cataloger made merchandising changes to the book, which caused the AOV to decrease from $80.45 to $72.80, a 9.5 percent drop.

A nice rate of growth was achieved, but the rule didn’t hold true.

Following are seven ways to increase your 12-month housefile rates.

Target And Reactivate Customers Who Haven’t Bought In 3 Years

Target and try to reactivate customers who haven’t bought in more than 36 months.

Encourage them by offering incentives to buy. Segment based on recency and dollar amount.

You may find that the high dollar RFM cells need to be mailed.

However, there will be several cells in the older recency and lower dollar spender cells that are good targets for reactivation.

Encourage them to buy again by offering free shipping (always the No. 1 offer) or a dollar amount off their next orders.

Goal: Bring these previous buyers into a recent zero-to-12-month RFM cell.

Convert Catalog Inquirers

Catalog requesters are an excellent source of prospects.

Review your remail strategy. How many times should you be mailing to nonconverting inquiries?

More than likely, three, four, five or more times.

Takeaway tip: After you’ve maximized mailings to the nonconverting inquiries, have one of the cooperative databases model the remaining names. They’ll identify which inquiry names to remail.

Target One Time Buyers

Target one-time buyers.

Catalogers often treat one-time buyers like they do all buyers. Yet a large percentage of the file includes those who’ve purchased only once.

Segment and target this group by offering an incentive to encourage one-time buyers to become multibuyers.

Again, the goal is to bring these one-time buyers into a more recent zero-to-12-month segment.

Mail Cooperative Catalog Databases

Use cooperative databases like Abacus and Prefer.

Each has a slightly different twist on modeling, and each will identify qualified prospect names another one missed.

So don’t just stick with using one; you can use them all cost effectively.

Mail Outside Prospect Lists

Tap outside prospect lists.

Of course you must rent and/or exchange others’ customer lists, because the universe of names available from the co-ops will be somewhat limited.

Takeaway tip: When examining your results from list rentals/exchanges, look at lifetime value and not just the conversion rate from one mailing.

Expand Your Product Offering and Page Count

Expand your product offering and increase page count to boost your response rate, which will encourage more people to buy.

Bounceback Catalog In Every Box

Include a bounce-back catalog with every outgoing order.

Increase response by making a special offer to customers who reorder within, say, the next 30 days.

Takeaway tip: Be sure the catalog is the first thing customers see when they open the box. You’ll hinder your results if the catalog is on the bottom.

Conclusion

The goal of most catalog businesses is to increase revenue.

Rather than focus solely on this end objective, focus on increasing your 12-month buyer count.

If you do, the revenue will take care of itself.

Be sure you have everything in place to grow your file, and your revenue will increase!

Introduction

We here at the Rimm-Kaufman Group are often asked by our clients,

“What’s the right amount to spend on new customer acquisition?”

We respond that direct marketers have to bring in each year at least as many new buyers as those buyers who stop buying, lest the business spiral into sales decline. And direct marketers seeking growth need even more. This is the core of effective acquisition marketing.

Stephen Lett is a well-respected direct marketing consultant who writes — and writes well — about such matters. When we read Steve’s article on customer acquisition, we thought his explanation could help many marketers. Though the article addresses catalogers, the insights apply equally to web marketers.

Steve graciously allowed us to reprint his article on on our site. (Steve has no relationship with the Rimm-Kaufman Group.) We hope you find it useful.

On to Steve’s article!

How Much To Spend Acquiring A New Buyer

There is a cost associated with acquiring a new buyer. Catalogers need to invest in converting prospects to buyers.

How much you are willing to pay for a new buyer depends on what you can afford to spend and how fast you want to grow. Over spending to acquire a new buyer and trying to grow too fast can lead to financial ruin. On the other hand, not investing in growing your house file can have a negative affect on your business and future growth trend.

Knowing how much to spend to acquire a new buyer is the subject of our column this month.

Prospecting Below Breakeven

Some catalogers feel they do not want to prospect below the incremental breakeven point (net sales less cost-of-goods-sold less direct selling expenses) on a cumulative basis. They want to be certain that all of the prospect lists they mail perform at least at breakeven or above.

While this is a nice goal to have, this philosophy can severely limit growth.

That’s because it is unlikely you can find enough good lists which perform above breakeven to sustain a desired level of growth or to even maintain same sales from one year to the next.

Catalogers need to be willing to invest in acquiring new buyers and this can only be accomplished mailing below the incremental breakeven point.

How much below is the real question?

House File Attrition: Maintaining Your 0-12 Month File

How much should you be willing to spend for a new buyer? What is a reasonable payback period for the investment you are willing to make?

There are logical answers to these excellent questions.

There is a certain attrition rate on any house file. Customers stop buying for any number of reasons. Economic conditions, poor service, older customers pass on, etc., all impact the buying decision.

At a minimum, it is important to replace those customers with fresh buyers so that your 0-12 month file does not decline.

And if you want to grow, the amount of prospecting you do needs to exceed your normal house file attrition rate.

Investing In Acquisition

For example, let’s assume that 50% of a typical customer file will purchase again next year.

This means that at a minimum, we need to replace the 50% who do not purchase so that the active house file does not decline.

This includes a combination of adding new buyers and bringing the older buyers on our house file into the 0-12 month category.

If we want to grow the percent of new-to-files has to be even higher than our normal attrition rate.

Let’s take a look at how much we can afford to spend for a new buyer based on what we expect in return.

Once again, we are talking about spending money, i.e., making an investment, in acquiring a new buyer.

One Year Payback Often Considered Reasonable

Catalogers often feel a payback of one year (or less) is considered a reasonable investment payback period. (The payback for some companies might even be longer.)

Some catalogers might say that they want to base the cost to acquire a new buyer on the expected life-time-value.

While this is not an unreasonable approach, most prefer to take a shorter term view.

While it unrealistic to expect to prospect in total (on a cumulative basis) at or above the breakeven point, it is reasonable to attempt to payback that investment within one year.

Cost-Per-New-Buyer Example, Calculated

How much we can afford to spend for a new buyer assuming a one year payback is calculated below.

Lets assume in our example below that our goal is to breakeven within one year after we acquire a new buyer, i.e., a one year payback.

In the year of our initial mailing to prospects, we acquired 1,500 new buyers from a mailing to 100,000 outside names.

	COST PER BUYER
	INITIAL	REPEAT	YR. 1
	MAILING	FACTOR	PAYBACK
Number of New Buyers		1,500	1,500
Quantity Mailed	100,000	15,000	115,000
Number of Times Mailed Annually	1	10	11
Response Rate	1.50%	5.98%	2.08%
Average Order Size	$65.00	$67.00	$65.75
Number of Orders	1,500	898	2,398
Gross Sales	$97,500	$60,143	$157,643
Less: Returns @ 5%	$4,643	$3,000	$7,643
Net Sales	$92,857	$57,143	$150,000
Less: Cost of Goods @ 47%	$43,643	$26,857	$70,500
Less: Direct Selling @ $.60	$60,000	$7,500	$67,500
Less: Variable Fulfillment @ 8%	$7,429	$4,571	$12,000
Net Cost	($18,214)	$18,214	$0
Cost/Contribution Per New Buyer	($12.14)	$20.29	$8.15

Note: Catalog cost in “Repeat” Column does not include the cost for the rented name; house mailing only.

Cost-Per-New-Buyer Example, Discussed

These 1,500 new buyers generated 898 orders the following year, $60,143 in additional revenue.

When we combine the initial mailing results with the repeat purchases made in year one, we show a breakeven in our example.

Our cost per new buyer was $12.14 initially.

Therefore, if our goal is to breakeven after one year on the investment we make initially to acquire a new buyer we can afford to invest up to $12.14 to acquire a new buyer in our example above.

As you can see, the year after the initial investment our contribution to profit and overhead is a positive $8.15 per buyer.

Obviously if we considered life-time-value the contribution in years two, three and beyond would be even greater.

The point is, new buyers are the lifeblood of any catalog company and we need to be willing to investment spend initially to acquire them.

Five Tips For Maximizing Your Prospecting Efforts

The time of year you prospect affects your economics.

For this reason, it is important to prospect with full knowledge and understanding of what it takes to maximize your results.

To get the most out of your prospecting, you might want to follow these suggestions:

• You should prospect the heaviest in your strongest drops. In a prior column month, we addressed the importance of testing new lists and prospecting during your best season or period.
• When you have the money to invest in prospecting. Prospect when you have the cash flow to do so. But, prospect wisely and not beyond your means.
• When you have a new product offer. It is always best to expose prospects to a new merchandising offering especially if they have seen an older one.
• When your core continuations have new names for you to mail. Capitalize on the new buyers which are added to your continuation lists. These names are sure to be a winner!
• Mail prospect tests in your strongest drops. This give them the best chance for success and/or with enough lead time to read results and roll out in your strongest drops.

Successful Direct Marketers Often Prospect At A Small Loss

The main point of this column is to point out that it is unlikely you can prospect in total above the incremental breakeven point.

This means catalogers need to be willing to invest in acquiring new buyers and in the growth of their company.

Scaling Back Acquisition Leads To Downward Spiral

When looking at an income statement, it is tempting to cut prospecting in order to save money and to put more profit on the bottom line.

But, is this really the right thing to do?

Probably not.

Doing so will cause a downward spiral and the 12-month buyer file will begin to decline.

At a minimum you should be willing to prospect to a level that will enable you to maintain your current level of sales.

If you want to grow beyond that level, the amount of prospecting you do will need to increase.

Again, this should be viewed as an investment in the future of your company.

Balancing The Short And The Long Term

Sacrificing the long-term growth and good of your company for short-term profits is not wise.

Be just as concerned about the change in your 12-month buyer file from one period to another as you would be about the results shown on your income statement.

The change or growth of your 12-month buyer file will give you a good idea of health of your business.

Invest in your future by generating new buyers. But invest wisely and be careful not to over mail.