What is a House File and How to Build One
By: Steve Lett
A house file is a collection of people who have at least one common interest … they all have made one or more purchases from your catalog and/or eCommerce site. As consumers and businesses make purchases, they are added to a list that we call your house file or buyer file (these two terms are used interchangeably).
A house file is carefully maintained by recency, frequency and monetary value which is referred to as R-F-M. Recency is the last date of purchase. Frequency is the number of times a customer has purchased. Monetary value is the total dollars spent over the life of the customer. Recency is the most important criteria of the three. A customer who has purchased in the last 30 days, for example, has a better chance of making a repeat purchase than someone who purchased 18 or 24 months ago.
The 0 to 12-month buyers are the most valuable segment of your house file. These are the customers that you want to include in every mailing. These include customers who have purchased from your catalog or who have made purchases through or from your website. If you track the revenue per catalog (RPC) mailed, as we do for all Lett Direct clients, you know the highest RPC comes from your 0 to 12-month house file.
The house file is your company’s #1 most valuable asset. It is the goose that lays the golden eggs. I always say the house file is what keeps the lights on. It is what makes it possible to purchase inventory, make payroll and to pay your bills. Some direct marketers carry the house file on their balance sheet. Banks consider the house file a soft asset and will generally not loan against it. If you merge or sell your company, the value is in the house file. It is your prized gem.
If you are a start-up catalog or eCommerce business, you won’t have a house file. You have to build a house file from scratch which is expensive. A good strategy is to start as an eCommerce business. Once you have at least 5,000 buyers, i.e., a house file, you can think about circulating a print catalog. This is the minimum number of buyers we feel it takes to develop prospecting models using the cooperative databases. At this point, you are leveraging your house file for prospecting purposes in order to expand and grow your house file.
How to Build a House File
The strength of your house file is what makes it possible for you to prospect cost effectively. Prospecting or mailing to non-customers as a way to grow your house file is an investment. In other words, companies do not make money mailing to prospects, i.e., non-buyers, at least on their initial order. The presence of an eCommerce website is one way to build a house file. Another way to grow your house file is to prospect using your print catalog. If you have enough buyers on your house file, i.e., at least 5,000 as mentioned previously, we can work with the cooperative databases to build statistical models to find prospects on their database similar to your customers. While demographics, i.e., age, income, etc., are important, another important criterion are the purchasing habits of the prospect. For example, the cooperative databases will look for prospects who purchase frequently from the same catalogs your customers buy from.
All buyers are not created equal. When studying the average order size, consider the variance between the catalog and the web. Typically, you’ll find the average order size from a print catalog is approximately 10% to 20% higher as compared to web-generated orders especially for 1x web-only buyers. This is because consumers do not shop the web the way they shop a print catalog. Web buyers tend to be “item” buyers. Consumers search the web for a particular item they want, find it and make their purchase. Catalog buyers, on the other hand, are shoppers and tend to be more loyal. They shop the pages of a catalog, where they often find multiple items to order and ultimately, they go to the web to actually place their order. The life-time-value of the catalog buyers are longer than web-only buyers.
There are also challenges for retailers who decide to start a catalog. For one thing, they do not have a house file to leverage. Perhaps they are capturing names and addresses at the point-of-sale. However, these names are of little benefit since retail buyers are not necessarily mail-order catalog shoppers.
A house file is a collection of proven mail-order and eCommerce buyers. Non-buyers are not considered part of your house file. They might be good prospects, but they have not yet made a purchase from your company. Remember, the more 0 to 12-month buyers you have on your house file, the greater the leverage. This helps you prospect more cost efficiently. The real value is in your house file. Grow it as much as you can based on your budget.
Stephen R. Lett is Founder & Chairman of Lett Direct, Inc., a catalog consulting firm specializing in digital marketing, circulation planning, forecasting and analysis since 1995. Mr. Lett spent the first 25 years of his career with leading catalog companies; both business-to-business and consumer. He is the author of a book, Strategic Catalog Marketing. He can be reached at 302-539-7257 or by email at firstname.lastname@example.org.