Calculating the True Value of Your List Rental Income

If your list is available for rental, one of the challenges you face is identifying the true value of your list rental income. List rental value can no longer simply be equated with list rental income. The increased reliance on exchanging during the past few years has forced mailers and their list managers to take a more comprehensive, realistic view of the definition of value that is derived from having one’s list on the market.

In addition to rental income, value is partly determined by your circulation strategy. Do you only rent your names? Is exchanging a major factor in deciding which outside lists you use? If so, are you exchanging with lists that are priced higher than yours? Lower? Are you an exchange-only list? In order to find the true value, you need to consider all these factors.

Mailers that rent only with reciprocal pricing can calculate their list value easily. In this scenario, list rental income is the true value of your list. Mailers with this policy understand that taking names from another list–whether on rental or exchange–is purely a cash-flow decision. If you are generating $175,000 in list rental income, that is the value of your list.

The most common policy is a mixture of rental and exchange, and it is within this scenario that list value calculations can vary widely from mailer to mailer and from list manager to list manager. A frequently used calculation is to multiply the average cost per 1,000 ($/M) of your rental names into your exchange volume. Average $/M is identified by dividing your net list rental income (less list management and brokerage commissions) into the number of rental names billed.

Gross billing $200,000
Less 20% broker fee ($40,000)
Less 10% management fee ($20,000)
Net billing $140,000
Rental names billed 1,250,000
Average $/M ($140,000/1,250) $112/M

Once you have determined a dollar value – in this case $112/M – you can then apply it to the number of names you processed on exchange. Let’s say you processed 1,000,000 names on exchange for the purposes of this example. Using this method, the “value” of your exchange names is $112,000.

By adding the $112,000 exchange value to your net billing, you can determine that your list value for the year is $252,000. There is a flaw in using this calculation, however. The average dollars per 1,000 names from year to year can fluctuate wildly depending on rental-to-exchange shifts, the percentage of business coming from noncatalog markets, and pricing deals. A more accurate way of determining value is to assign a dollar amount to the exchange names based on what you would have to pay for the names if you were to have to rent them. Depending on your market and the number of selections you take on any given list, this can also vary. You’ll need to work with your broker to determine the rental list cost at the time the exchange is processed. By tracking this, all you need to do at the end of the year on a list-by-list basis is divide the total exchange names by the rental cost per 1,000 names.

Most mailers that use this method will find that, even with preexisting rental deals of net-name arrangements, selection caps, and price breaks on the base rate, the average list cost, had the names been acquired on rental instead of exchange, is closer to $125/M than to $112/M.

If we apply that figure to the original example, you can see the impact it can have on the value of your list:

Net billing $140,000
Exchange volume 1,000,000
Exchange value (1 million x $125/M) $125,000
Total list value $265,000

As you see, using the latter calculation increased the value of your list 5%. If you are an exchange-only mailer, you can also use this method to assign a value to your list.

Regardless of how you determine it, the correct way to find the true value of your list is to properly value exchanges. As marketing departments are pressured more and more by upper management to squeeze value out of their list, it’s important to not turn a blind eye to your exchange volume. By using the right formulas, you can significantly boost the perceived value of your list. After that, it’s up to you to use the right list manager to maximize your rental income. Subsequently, you’ll be in the best possible financial position for future growth.

Brian DeLaite is executive vice president, list management for New York-based list services firm ALC of New York.

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