Success Depends on the Growth of Your 12-Month House File

by Stephen Lett

How much you want to grow your business is dependent upon the growth rate of your 12-month buyer file.  If your 12-month buyer file is growing, your revenue will most likely increase too. If your 12-month buyer file is decreasing, your revenue will probably decrease. We pay a great deal of attention to the daily and/or weekly demand report. Are we up from last year? How do we look against budget? It is important to know the answers to these questions. However, we probably do not pay enough attention to the change (increase or decrease) in the 12-month buyer file which is something we as catalogers should track. This month we will discuss why the 12-month buyer file is critical to your rate of growth. And, we will discuss ways to grow your file and what it means to a business if you don’t.

Rule of Thumb: The percentage of revenue growth will approximate the percentage increase in your 12-month buyer file. This means that if you grow your 12-month file by 10%, your revenue should also increase by approximately the same percentage.  The change of your 12-month buyer file is a key indicator as to how well your business is doing (or not doing).  Therefore, if you focus on adding new buyers to your file and bringing “older” buyers forward into a more recent R-F-M cell, your business will grow. To illustrate our example, please refer to the chart below. We compared the 12-month buyer counts for ten different consumer catalog companies all on 12-31-04 vs. 12-31-03. We also have shown the percent increase in their order/revenue demand for the same period of time. You will note the consistency of the percentage of growth compared with the increase in number of buyers added to their respective files.

House Segment
12-31-03
12-31-04
CHANGE
Total
65,839
92,844
41.02%
Overall Orders
2003
2004
CHANGE
Total
83,965
113,462
35.13%
Overall Demand
2003
2004
CHANGE
Total
$8,638,937
$11,667,218
35.05%

In our example, the 12-month buyer file increased from 65,839 to 92,844 or +41%. This large buyer count increase resulted in a 35% increase in the order/revenue demand. Again, these are average from ten different firms.

When comparing the rate of growth of the house file, it is important that you compare the same period of times. For example, we need to determine the buyer count on December 31, 2004 compared with December 31, 2003. Or, February 28, 2005 vs. February 28, 2004. Comparing 12-month buyer counts from one month to another will not provide a true comparison due to the seasonality of a business. Always pull your comparisons from the same point(s) in time to have an apples-to-apples comparison.

Keep in mind that this rule of thumb assumes that average order sizes remain fairly constant with no major changes taking place in the business. A change in the average order size, for example, will cause our rule of thumb not to hold true; see example below. In the case, the 12-month buyer file increased almost 39% yet the demand increased 25%. Merchandising changes were made to the book which caused the average order size to decrease from $80.45 to $72.80 a 9.5% drop. A nice rate of growth was achieved but our rule did not hold true.

House Segment
12-31-03
12-31-04
CHANGE
0-6 month
10,161
20,856
105.26%
7-12 month
36,811
44,320
20.40%
Total
46,972
65,176
38.76%
Overall Orders
2003
2004
CHANGE
Total
97,184
134,251
38.14%
Overall Demand
2003
2004
CHANGE
Total
$7,818,806
$9,773,508
+25.00%

Growing the 12-month house file does not just mean that you should prospect more in order to generate new buyers.  Our job as catalog marketers is to pull “older” or inactive buyers forward into a more recent R-F-M cell as a way to increase our 12-month buyer count. We also need to focus on converting inquiries to buyers. Here are a few suggested ways to increase your 12-month buyer file:

  1. House File Reactivation – Encourage older customers to order again by offering an incentive. Segment based on recency and dollar. Target those customers who have not make a purchase in 36+ (or 24+) months. It could be that the high dollar R-F-M cells should be mailed. However, there will be several cells in the older recency and lower dollar spenders that are a good target for reactivation. Encourage them to buy again by offering free shipping (always the #1 offer) or a dollar amount off their next order. Bring these older buyers into a recent 0-12 month R-F-M cell.
  2. Non-Converting Inquiries – Catalog requestors represent an excellent source for new buyers. Review your re-mail strategy. How many times should you be mailing to non-converting inquiries? Three, four, five or more times more than likely. After you have maximized mailings to the non-converting inquiries, have one of the cooperative databases model the remaining names. They will identify which inquiry names you can probably mail again.
  3. Target One Time Buyers – Too many times, we treat one time buyers like we do all buyers. Yet, a large percentage of the file includes those who have only purchased one time. Segment and target this group by offering an incentive which will encourage one time buyers to become two or more time customers. Again, the goal is to bring these one time buyers into a more recent 0-12 month segment.
  4. Utilize the Cooperative Databases – Take full advantage of the coops. They can provide a good pool of prospect names. Use all of the coops to your advantage. They all have a slightly different twist on modeling and each one will identify qualified prospect names another one may not identify. Don’t just stick with using one coop. You can use them all cost effectively.
  5. Outside Prospect Lists – Of course you need to rent and/or exchange other lists in order to grow. You can employ circulation techniques to increase the RPC (revenue per catalog) but you will need to rent outside lists if you want to grow your business. That’s because the universe of names available to you from the coops will be somewhat limited. What’s more, if the other lists work, mail them! Look at life-time-value and not just the conversion rate from one mailing.
  6. Merchandising and Page Count – There is no substitute for good merchandising. Expanding your product offering and increasing page count will increase your response rate which will encourage more people to buy. This has a tremendous impact on growing your 12-month file.
  7. Bounce Back Catalogs – Encourage repeat orders by including a bounce back catalog with every outgoing order. Increase response by making a special offer to customers who reorder within “the next 30 days”. Be sure the catalog is the first thing the customer sees when they open the box. You will hinder your results if the catalog is on the bottom.

The goal of most business is to increase revenue. Rather than focus solely on this end objective, focus on increasing your 12-month buyer count. The revenue will take care of itself if you do. Be certain you have everything in place to grow your 12-month buyer file and your revenue will increase!