Maximize Your Profit from Your Mailing List

If you use search engines you'll spend huge amounts of time and persistence building – and retaining – your position. If you use pay-per-click you'll spend from a few cents to many dollars on clicks only a small proportion of which will generate actual sales. If you use any of the ‘free' advertising systems you'll discover they are not really free, they all cost money or time. If you use Affiliates the commission could be anything from 50 to 75%. You may not have to carry risk but it does cost money.

To increase the price even further, ON AVERAGE 50 to 60% of customers will buy one thing (or have one visit) and never come back. This is an ‘iron-clad average' in the direct selling business. This may not seem to matter in cash flow terms; after all you DID sell something. But it does mean that the cost of the real, multi-purchase customers is even higher. Your email list is an expensive asset, very expensive. And it gets worse!When they arrive on the list, you don't know which are going to buy eventually, which of those that buy are one-timers, and when the multi-buyers are going to elect to leave you. You react to this by doing two things: (1) you spend dollars, time and energy marketing and sending promotions to your whole list as you don't know who is going to buy and (2) you continue to build the list through the same expensive approaches you used initially, effectively playing a ‘numbers game'.

You are leaving a lot of money on the table. If you could do better than average finding multi-purchase customers (someone does, it is after all an average), if you could direct your promotions to those most likely to buy, if you could retain those ‘hot' customers longer…. Clearly there is a lot of room to improve profits. So what is the secret to success?The SecretIt's much less expensive to retain customers than it is to acquire new ones. Academic research bears this out*:

• The cost of acquisition occurs only at the beginning of a relationship, so the longer the relationship, the lower the amortized cost.
• Long-term customers tend to be less inclined to switch and tend to be less price sensitive. This can result in stable unit sales volume and increases in dollar-sales volume.
• Long-term customers tend to initiate free word of mouth promotions and referrals.
• Long-term customers are more likely to purchase ancillary products and high margin supplemental products.
• Regular customers tend to be less expensive to service because they are familiar with the process, require less "education", and are consistent in their order placement.

All this turns into three rules for success in managing your email list:

Rule #1: When you have a valuable customer – hold on to her. ‘Her': yes, women control over 80% of all retail spending!

Rule #2: Try to make less valuable customers more valuable over time. Do this by creating and executing promotions that focus on customers that will respond. Isolating those who will respond means focusing on their buying behavior – hint: someone who has bought from you is MUCH more likely to buy again.

Rule #3: Acquire the types of customer who will be worth retaining in the first place. But, where do you find them? Link your high spending customers to the places you sourced them, then go back to that well. If you get your best customers from pay-per-click on Yahoo! Then go back to Yahoo! for moreRemember the old adage: "The money is in the list". Well it is, but there is more to maximizing your profits than simply mailing out offers. It's no surprise that the truly profitable web sites have their roots on established direct mail expertise.

*Source: Buchanan, R. and Gilles, C. (1990) "Value managed relationship: The key to customer retention and profitability", European Management Journal, vol 8, no 4, 1990.