March 04, 2009

Housefile Modeling & Co-Ops

In customer acquisition, you may have a mutually beneficial relationship with the co-ops. You get enough value to grow your business, they generate enough revenue to be profitable.

In housefile modeling, however, the story changes. Clients using Zip Code Forensics, a free tool that outlines the most productive zip codes, tell me that they are achieving 80% to 85% of the performance improvement seen via co-op housefile modeling. Here, however, the difference in cost is enough to turn the tables.

Co-Ops Zip Code Fr. Base Perf.
Circulation 25,000 25,000 100,000
Buyers 313 303 1,100
Response Rate 1.25% 1.21% 1.10%
Average Order Value $135.00 $135.00 $135.00
Demand $42,188 $40,838 $148,500
Contribution $14,766 $14,293 $51,975
Less Book Cost $13,750 $13,750 $55,000
Less Co-Op Expense $625 $0 $0
Variable Profit $391 $543 ($3,025)
Profit Per Buyer $1.25 $1.80 ($2.75)

In this example, Zip Code Forensics only gets us 73% of the improvement (you tell me that average number is about 82%) yielded by the co-op housefile model. However, at $0.025 per housefile name, you don't generate enough business to offset the benefit of the freely available Zip Code Forensics segmentation tool.

Unless your co-op is tossing in a bunch of goodies, you're better off using Zip Code Forensics to overlay against lapsed buyers. You went for the lower cost solution when you abandoned the list industry for the co-ops. Why not use a free tool instead of a low-cost solution?