Simple Ways to Increase Profits from your Mailing List.
Reprinted from SEMA News magazine, March 2005
by Jon Hedges
Utilizing a mailing list and your customer database is one way the average SEMA-member business can increase sales, and it doesn't have to be complicated, either.
Whether you're a retailer or a manufacturer, there are several ways to use your customer list. To make the best use of it, here are some basic principles to follow.
Database Marketing 101
Database marketing sounds scary if you've never done it, but it is based on some pretty easy stuff. There are three basic principles to remember:
1). Your mailing list can be a database.
2). Your database can be a goldmine.
3). Mine it with a powerful concept called Lifetime Value (LTV).
First, let's define and simplify each of these three concepts.
Everyone is probably familiar with what a mailing list is. First and last name, street address, city, state and zip code are the basic requirements of any mailing list.
Making the leap from mailing list to database only requires the addition of useful customer information. Perhaps you know how much money they spent with you, or the last date they purchased something. Maybe it's the type of product they purchased, or the addition of an email address.
Here's why this is useful information: if you're mailing a newsletter or a special offer, you only need to spend money on the most likely prospects. If you have a customer that hasn't purchased from you in four years, they're probably not going to purchase from you in the future and you don't need to waste your money mailing to them. If you have special offer to send to your best customers (or “preferred customers”), you might want to limit the offer to the ones that spend the most money with you.
Lifetime Value
Lifetime value is a way of looking at the value of your customers into the future. For decades, it was something that catalog companies were primarily interested in, but with cheap computing power and the ever-present need to improve profits, times have changed and LTV is being used in a variety of businesses.
For example, a $23 billion chain of electronics stores started a program in 2004 to determine the lifetime value of their retail customers. They're going so far as to discourage sales to customers with high return rates. A strategy to jettison customers might seem odd, but in a tough retail environment where competitors are losing market share or filing for bankruptcy, this particular chain had a 10% increase in Christmas-season sales. And 10% on top of billions of dollars is a lot of money.
There are dozens of acceptable and complex ways to measure LTV, but here's the simplest way to look at the concept, in this case for a SEMA-member retail store.
Let's say a retailer brings in 1,000 new customers in one year, and they spend an average of $75.00. The retailer knows they're new and knows their average sale, because the retailer has a database as we discussed a few paragraphs ago. Here's what sales look like:
| Year 1: | 1000 customers x $75 = | $75,000 |
Now, in the next year, let's assume an attrition rate of 50%. In other words, half of the original 1,000 new customers don't come back to the store. Let's also assume they spend $75.00 on average in the second year.
| Year 1: | 1000 customers x $75 = | $75,000 |
| Year 2: | 50% attrition = 500 customers x $75 = | $37,500 |
Let's go to the third year. This year we also have an attrition rate of 50%, so of the original 1,000 new customers in the first year, we're already down to 250. Let's assume they still spend an average of $75.00 in the store.
| Year 1: | 1000 customers x $75 = | $75,000 |
| Year 2: | 50% attrition = 500 customers x $75 = | $37,500 |
| Year 3: | 50% attrition = 250 customers x $75 = | $18,750 |
TOTAL: |
$131,250 |
Of the original 1,000 new customers, we now have sales totaling $131,250 after three years. If the retailer has a database and can identify these customers, there are now some new opportunities to increase sales.
First, the retailer can reduce the attrition rate and actively work to keep these 1,000 new customers coming in. If the attrition rate was 40% that means the retailer was able to get 60% of the customer back every year. That could be done by mailing offers specifically to these customers. If the attrition rate was 40% the retailer would have sales after three years of $147,000 instead of $131,250, a sales increase of 12%.
Second, the retailer can try to increase how much these customers spend by targeting them with a mailed offer. If attrition rate was reduced to 40% and the average sale in the second and third year was increased to $95, the retailer would have sales after three years of $166,200 instead of $131,250, a sales increase of nearly 27%!
Third, since the retailer knows who these customers are, he can afford to invest more marketing dollars in smarter ways at them. Think of this as a rifle shot directed at specific customers instead of a shotgun method aimed at anyone that happens to read a newspaper ad.
Keep it Clean
There are a lot of good reasons to spend the time to keep a mailing list clean and current. Maintaining good list hygiene will increase the number of mailed pieces that get through to your customers and will reduce the wasted costs with undeliverable mail.
You can maintain a mailing list in Microsoft Excel as a simple list or in Microsoft Access which is a true database program (unfortunately it also requires additional skills). There are also dozens of software packages available designed to maintain a mailing list.
As a general rule of thumb, a mailing list can change between 0.5% and 1.5% each month (and in 2005-2006 your customer file for Louisiana and other Gulf Coast states will change dramatically). Your customers die, move, or get married. Each year, more than 44 million Americans move. So, keeping up with your mailing list has to be an ongoing job.
If you get a mailing list program, make sure it is “CASS-Certified” (Coding Accuracy Support System) by the US Postal Service. A CASS Certified program will help add the correct ZIP code to an address, and standardize address spellings, all of which will improve deliverability. Some will give you stats and prepare carrier routes and bar codes to qualify for postal discounts.
Ancillary Service Endorsements (ASEs) will help you manage a mailing list. These are the words you often see on bulk mail that say “Address Service Requested” or “Change Service Requested” and these will determine if you get an address correction back or not, and if you get the mailed piece back or if it is destroyed. There are pages of requirements for ASEs, which can be found on the Postal Service's web site at www.USPS.com under the heading “Mailing Tools.”
You can also work with a mailer or lettershop that can provide NCOALink data. NCOA stands for National Change of Address, and the USPS licenses the data to vendors to help reduce non-deliverable mail.