Give first-time buyers a boost

There's an old joke about the devil being low on quota, so he decided to heavily promote special offers, free gifts and promises. With an immediate and overwhelming response, his quota was surpassed. The devil then began hearing complaints from buyers wondering what happened to all the wonderful promises. The devil replied, “You're customers now — before you were prospects.”

If this story sounds familiar, you know there's a bit of truth to the acquisition process. Marketers spend much time and resources to acquire new customers while they neglect to actively acknowledge current customers.

The problem is, typically, complacency with customer file management, as mailers focus on prospecting to acquire customers, with a separate emphasis on mailing customers. But if marketers aimed to aggressively turn first-time buyers into multibuyers within six months? The reason for the urgency is to recoup the cost of acquisition quickly and increase the likelihood of a multichannel buyer within the first six months of acquisition.

If you haven't evaluated the marketing cost to acquire a customer lately, here's the quick math. To illustrate, the example below identifies the variable costs to put the Spring '07 catalog in the mail using the following categories: creative, print, postage, lists, data processing, and order form; you should also know the total print quantity.

Tip: If it's too much trouble to isolate the variable costs, use the total cost to at least understand the methodology, then break out costs accordingly.

Once you identify the variable unit costs, the next step is to calculate the marketing cost to acquire customers. The nuance of finding the marketing cost is that it's isolated from the costs for operations, call center, and cost of goods. You want to understand how much money it takes to recoup the advertising dollars spent. Start with a database query to find the number of first-time buyers from the Spring '07 campaign as well as their corresponding revenue metric.

The cost category comprises the variable unit marketing costs of printing ($0.25); postage ($0.21); lists ($0.12); data processing ($0.04), and order form ($0.02) for a total unit cost of $0.64. Using variable costs is important because fixed costs — such as creative, photography, copywriting, color separations, print set up — all have to be done whether or not prospects are being mailed. The house file should carry all of the fixed costs.

Multiplying the total unit cost of $0.64 by the 50,000 prospecting quantity yields the $32,000 cost. Divide the cost ($32,000) by the number of orders (500) to reveal $64 cost to acquire. You see the $32,500 of revenue barely covered the advertising spent. Don't panic — it's rare that any cataloger can prospect profitably.

One way to minimize costs for a second contact is to use the outbound customer package. When you can identify the order from a first-time buyer, you have an opportunity to immediately market to that customer. The costs are limited to creative, printing and promotion — no lists or postage!

Some successful ideas include adding a thank you/welcome note with a $10 gift card; a letter with a general rebuy offer; and some companies even segment offers based on channel of purchase as well as product purchased, or if the order is delivered to a gift recipient. Depending on your system capabilities, you may have other ways to target customers.

Finding ways to take advantage of the first-time buyer shipment capitalizes on two opportunities:cost savings, since there's no extra postage; and earning an immediate sale from the new customer. Here's how this works: Continuing the earlier example, remember 500 new customers were acquired from the Spring '07 campaign. If you identify a new customer as part of the order process, then the pickers in the warehouse can also pack the welcome note with a $10 gift card.

To evaluate if the costs justify the potential sales, calculate the following:

Customers: 500

Unit cost for the card: $0.50

Total cost for the cards: $250

Assume redemption rate: 10%

Assume average order value: $65

Forecast orders: 50

Forecast revenue: $3,250

Reviewing the information, you'll see the cost is easily recouped. To identify the breakeven for the project, divide the $250 cost by the $65 assumed average order value. This reveals four customers need to place an order to cover the advertising costs.