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| AVOIDING FOOL'S GOLD WHEN PROSPECTING |
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| As we work with our clients to optimize their circulation strategies, we are keenly aware of the major hurdles they face in today's marketplace: |
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 | The number of competitors is increasing, particularly due to online marketers, which can cause housefiles to shrink |
| Costs of marketing are increasing - paper costs, postage costs, data management |
| Reliable sources of new names/prospects are more difficult to identify |
| Managing the increasing sophistication of technology can be unwieldy (see The Next Mile) |
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| To combat decreasing 12 or 24 month files and increasing costs, Marketsmith offers guidance on how to identify the most effective prospecting sources. |
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| 1. | Start with an analysis of your business. How is it performing relative to the competition? Is the housefile growing or shrinking versus the competition's files? |
| 2. | Then carefully analyze historical performance. Look at three years worth of performance data by source, across all channels. |
| 3. | Calculate the profitability of each original source, irrespective of purchase channel, individually, down to the contribution level, factoring in all variable marketing costs, cost of goods sold, returns/cancels, and fulfillment costs. Looking at sales per book or per piece or per word does not give the full picture. |
| 4. | Look at inquiries and gift recipients as individual sources as well. And older housefile names can be included in the review. |
| 5. | Determine the lifetime value of all sources. We generally look for payback within a twelve month period to justify the cost of a source. Sources include lists, paid search, affiliates, and advertising. Organic search generally has minimal costs associated with it. And email tends to be a retention tool rather than a prospecting one. |
| 6. | Sources which cover their costs within one year can generate valuable prospects. |
| 7. | Consider co-op names modeled on housefile best customers. Use those models to evaluate the giftee, inquiry, and 36+ names also. |
| 8. | It is important to test all new sources to determine their effectiveness. Make sure tests are versus control groups so results can be validated and form the basis for a strategy moving forward. |
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| Careful analysis and attention to actual contribution delivered after all variable costs are covered will identify which sources are most likely to perform at profitable levels. |
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