May 10, 2011

That Organic Percentage Better Be Right, Right?

My critics lampoon me about the "organic percentage".
  • "We provide our clients with the best matchback technology in the world.  That customer would never order without having first received a catalog.  Why did the customer even visit the website in the first place?  It was because the client mailed the customer a catalog.  Your methodology is just plain wrong."
  • "You said that the organic percentage is 44%.  How can you even know that?  What if it is 39%?  Then everything you say is wrong.  Unless you nail this thing within one point, I can't possibly support your guess.  Come one, this is too important to be guessing!"
  • "You want me to mail my best customers less and reinvest money in customer acquisition?  Are you crazy?  It costs seven times more to acquire a customer than it costs to retain a customer."
The comments are defensive, of course.  I get it.

Some folks think that if the organic percentage is off by a few points, then the whole methodology fails.  That's not the case, and that's a good thing.

Here's an example.  We assume that we mail this customer ten catalogs a year, we predict the customer to spend $40 next year, and we predict the organic percentage to be 44%.  Here's a profit and loss statement, by catalog.



Catalog Organic Total Total
Catalogs  Demand  Demand  Demand  Profit
0 $0.00 $17.60 $17.60 $6.16
1 $4.47 $17.60 $22.07 $6.97
2 $7.26 $17.60 $24.86 $7.20
3 $9.64 $17.60 $27.24 $7.29
4 $11.79 $17.60 $29.39 $7.29
5 $13.79 $17.60 $31.39 $7.24
6 $15.67 $17.60 $33.27 $7.14
7 $17.45 $17.60 $35.05 $7.02
8 $19.16 $17.60 $36.76 $6.87
9 $20.81 $17.60 $38.41 $6.69
10 $22.40 $17.60 $40.00 $6.50
11 $23.95 $17.60 $41.55 $6.29
12 $25.45 $17.60 $43.05 $6.07

You're currently mailing ten catalogs ... this methodology says that four catalogs is optimal.


Now, let's pretend that I was way off on the organic percentage, and it really is 34%.  Here's what the table looks like:




Catalog Organic Total Total
Catalogs  Demand  Demand  Demand  Profit
0 $0.00 $13.60 $13.60 $4.76
1 $5.27 $13.60 $18.87 $5.85
2 $8.56 $13.60 $22.16 $6.25
3 $11.37 $13.60 $24.97 $6.49
4 $13.90 $13.60 $27.50 $6.63
5 $16.25 $13.60 $29.85 $6.70
6 $18.46 $13.60 $32.06 $6.72
7 $20.57 $13.60 $34.17 $6.71
8 $22.58 $13.60 $36.18 $6.66
9 $24.52 $13.60 $38.12 $6.59
10 $26.40 $13.60 $40.00 $6.50
11 $28.22 $13.60 $41.82 $6.39
12 $29.99 $13.60 $43.59 $6.26



Let's review the findings.
  • You're using matchback technology to mail ten catalogs a year.
  • My methodology says you should go down to four mailings a year, and reinvest the money somewhere else (or pocket it, your choice).
  • Even if my estimate is off by somewhere around 30%, you should mail six catalogs a year ... and mailing four catalogs, in this scenario, is more profitable than mailing ten catalogs.
I get that some of you in the audience will say "my file will be less strong if I follow your advice, so I won't follow your advice."  That's ok.  But you can reinvest the ad cost in new customers, and even if you lose money on the new customers, you frequently still come out ahead from a profit standpoint.


Most of the time, I underestimate the organic percentage.  That's when fun stuff starts happening!


I understand that you get frustrated by and concerned about this methodology.  It's a methodology that few in the catalog industry endorse.  It works.  And you can be wrong about the prediction of the organic percentage, and you still come out ahead vs. doing nothing.


Questions?  Contact me for assistance.