by guest author, Jim Gilbert
Last week, I had a former student ask me what list he should buy to grow his new business. I’ll tell you why that question is the wrong one.
First of all, if you’re new to the catalog/multichannel business model, you don’t buy lists; you rent them. Rentals are for one-time use only. In fact, the list industry works very hard to police each list it rents out by seeding names to find out if list renters are using it correctly.
So, if you mail the same list more than once, it’s likely you’ll get caught, and your catalog could wind up blackballed in the industry (which is very small). Your list broker could get in trouble, too!
Next, there’s no such thing as one list that can grow a catalog business. Heck, if there was, I would be out of a career, and everybody would be in the catalog business! But I digress.
If you’re looking to test list rentals as a way of acquiring new customers, here are a few tips for you.
1. It’s likely that any one particular list you mail won’t make a profit on the first mailing. Make sure you understand the concept of lifetime value, which is the net stream of revenue customers will generate over their lifetime. If you lose money on acquiring customers, you’d better make it up with subsequent orders.
2. A lifetime value analysis looks like a P&L for each customer. Essentially, all income and expenses over the years are calculated and ROI can be seen over time.
3. Merely mailing a test catalog one time can be a wonderful way to help your printers’ kid get new braces and give the U.S. Postal Service enough money to fund its next rate case.
4. If you’re going to invest in catalog marketing, develop a fully cooked plan that includes a mail plan by year, by drop and by list — with cash flow estimates, P&Ls and the aforementioned LTV estimates. A plan by drop and by list includes many lists, including your housefile and rented lists.
5. Expect to invest in acquiring new customers for a number of years. Assume that you need to fund your catalog for three years minimum until you have reached critical mass. I define critical mass as enough customers to generate enough sales per catalog to cover your prospecting efforts. Said another way, that’s your break-even point.
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Jim Gilbert is president of Gilbert Direct Marketing, a full-service catalog and direct marketing agency. You can reach him at jimdirect@aol.com or 561-302-1719.