How to Increase Outside List Performance
by Stephen Lett
Adding new buyers is critical to any catalog business. At a minimum catalogers need to replace buyers lost due to attrition. A lack of prospecting to outside lists will cause a reduction in the size of the housefile and start a downward spiral often difficult to reverse. Prospecting has become more difficult and more costly … that’s true. But, you cannot afford to not prospect. This month, I’d like to share with you ways to increase the performance of outside lists which will help lower the cost of acquiring a new buyer.
From the get-go, it is important to understand that most prospecting is done at an incremental loss (we will define what we mean by incremental later). You need to accept the fact that you cannot make money prospecting based solely on the initial order. Catalogers depend on first time buyers to make a second purchase to convert red ink to black ink on the profit & loss statement. Think of prospecting as making an investment in the future of your business.
All expenses in a catalog business cannot be incremental, true. You can “incremental” your way into the poor house! But when it comes to prospecting, only try to cover your out-of-pocket expenses including customer returns & allowances, cost-of-goods sold and direct selling expenses. The current housefile needs to be strong enough to support the overhead expenses of the business; not the prospects. The formula for determining the incremental breakeven point is as follows:
Gross Sales minus Customer Returns & Allowances minus
Cost-of-goods sold minus
direct selling expenses (printing costs, outside lists, postage, etc.) =
If you can accept the fact that you need to investment spend in order to grow (or simply to maintain the current size of your 12-month buyer file) then we can move on. How low you mail below the incremental breakeven point depends on the financial strength of your company, size of your existing housefile and just how fast you want to grow. I always caution against over mailing and trying to grow too fast.
I can remember several years ago when catalogers could prospect above the incremental breakeven point. It was much easier then to start and to grow a catalog business. Not true today. There are several reasons why it has become more difficult and costly to prospect. Response rates have declined due to the over mailing the same names time and time again. Paper and postage costs are much higher today which has increased incremental breakeven points. It’s a double edge sword with lower response rates and higher costs. As catalogers, we need to do everything possible to improve outside list results. Here are ten proven ways to increase the RPC (Revenue Per Catalog):
Study how well each list continuation performs over a period of time.We tend to look at list performance only by drop. But, is that enough? It is better to look at list performance over time. Consider how many times you can mail each list per year/season. Perhaps you can mail a particular list more often in order to increase the RPC. Or, you could be mailing a list too often which can reduce your RPC. The danger of over mailing a list is that the performance can fall off to the point where it looks like you cannot use the list at all when that might not be the case at all.
Use ZIP models. Zip models can be used to improve performance. A good use for Zip models is when selecting lower performing segments of a file (deeper selects), or when using a larger file that performs marginally.
Re-evaluate the selects you are using continually. If you have lists that are typically lower performers, consider mailing a tighter select rather than taking less names for the same select. For example, if you normally select a $50+ 3-month buyer, try using a $75+ 2 month buyer. This will often counteract the lower performance of the mailing and help to increase the RPC.
Look beyond standard performance indicators such as the response rate, average order and RPC. Consider performance indexes. This will tell you which lists over or under performs relative to the performance of ALL list used. This will help in the planning and evaluation of the lists you want to use. Shown below is an example of how performance indexes might appear on your weekly report. Note the three columns to the far right of the chart, i.e., Resp. Index, Avg. Order Index and RPC Index. These columns show the average performances of these lists compared with all the lists that were mailed.
Understand sporadic list performance. If a list works sporadically, look for performance patterns. It could be that your offer is not appealing to that core list at certain times of the year. Or, it could be that the customers the list owner is acquiring do not find your particular offer appealing. In either case, if you see a pattern, you can limit when you mail in order to maximize the performance of the list.
Keep an eye on exchange balances. If you are in a highly competitive market, this is an essential point. Often, your “best” lists will not rent to you if the exchange balances get out of balance. It is important to monitor these exchange balances yourself to avoid getting turned down and falling short on names unexpectedly. What’s more, be careful not to approve your own list orders on exchange just because of the exchange. Only exchange with list owners whose list you want to use based on proven historical results.
Use promotional offers. Use promos to increase the response rate to outside lists. Free shipping, for example, will typically lift the response rate 20% to 25%. A dollar amount off the order will also increase the rate of response. If you want to maximize the response rate, be careful not to set the dollar minimum to qualify for the offer to high. In fact, consider not having a dollar minimum. This will encourage more people to order.
Use proven direct response catalog buyer lists. Product affinity is the most important factor when determining which specific list to use. Be sure to select lists which are synergic with your offer. For example, home décor vs. home décor. Be careful using subscriber and compiled lists (unless you are selling business-to-business). You will always get the best results from mailing to proven mail order catalog buyer lists whose product offering is compatible with yours.
Optimize lists (some lists). List performance can be improved by optimizing the marginal outside lists. Or, if you are using subscriber or compiled lists, list performance can be enhanced through outside list optimization. This is the process of using one of the cooperative databases to indentify the catalog buyers on the lists you are using who are most likely to purchase from your particular offer.
Consider seasonality factors. Know when to prospect. But better yet, know when NOT to prospect. Only going fishing when the fish are biting! Don’t prospect in the off season if you want to maximize the revenue per catalog mailed. Typically, holiday is the best season for consumer catalogers. This means that the highest or best response will be achieved during the holiday season. Your fall results will be 70% to 75% of your holiday results. Spring is 65% of holiday and the slower summer months equal 60% of holiday. Let’s say that a particular prospect list generates during holiday a response rate of 1.88% and $1.17 RPC. Let’s also assume that our incremental breakeven point is $1.00 per book. The response rate for this same list mailed during the summer will be approximately 1.13% with an expected RPC of $.70 per book which is way below our incremental breakeven point. We can prospect to this list above the incremental breakeven point during the holiday season. If we use this same list in summer, we can expect an incremental loss.
You can increase outside list performance by focusing on these ten proven methods. There are other things you can do as well such as being careful not to over mail. The more you mail, the lower the revenue per catalog. Not all lists are created equal for your offer. And more is not necessarily better. Manage your circulation the way your Controller manages your profit & loss statement. Following these suggestions and using good common sense won’t guarantee results. But, your outside list performance should begin to improve over time.