There are days when you realize that we're failing at math.
Here's the argument, as presented to me.
- Company has 1,000,000 lapsed buyers (last purchase 13+ months ago).
- On average, 1% of these customers respond to a catalog, if mailed, after matchback.
- On average, if the company mails these customers, the company loses $0.03 on every catalog mailed.
- Company only mails these customers ten times out of twenty annual mailings (whew).
- We're only losing $0.03 per catalog mailed, that's not so bad, and they are our existing customers, so why not boost our customer file???!!!
- The long-term value of a reactivated buyer is $20.00 profit, so we only lose $0.03 to gain $20.00 profit.
Here's the argument, as presented by me:
- You are mailing 1,000,000 * 10 = 10,000,000 catalogs.
- Only 1% respond, after matchback (and we've debunked that one a million times on this blog, right), meaning that 10,000 customers purchase.
- You actually lose $0.03 * 1,000,000 * 10 = $300,000 profit, per year. $300,000 profit.
- You actually lose $300,000 / 10,000 = $30.00 profit per reactivated buyer.
- You actually lose $20.00 long-term gain - $30.00 reactivation profit = $10.00 per reactivated buyer.
- Strategy = DON'T DO THIS!!
Pennies are seductive. It's so easy to make the decision to lose a few pennies, who's going to notice?
Well, pennies are the difference between being a highly profitable company, and being just plain average, or below average.
What would Kevin do (WWKD)?
- Realize that half of the customers you are mailing would have reactivated anyway, due to your organic percentage being around 50%.
- This means that you are actually reactivating half of the customers you think you are reactivating, meaning that you are actually losing $60.00 profit to reactivate a name, a rate of profit you'll never make up with $20.00 of future profit.
- I would pocket half of the profit now, and re-invest half of the profit in new customer acquisition, growing your customer file more profitably in the process. I mean, be honest, you're not losing $60.00 of profit acquiring new names from Abacus, right? So spend a bit more with Abacus, be willing to lose $12.00 to acquire a customer that generates $20.00 of future profit, and you come out way ahead.