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?

4 comments:

  1. derek.newman3:27 PM

    Kevin,

    "you're better off using Zip Code Forensics to overlay against lapsed buyers"

    I wondered about this (for a couple of days) after I replied to "Lapsed Buyers And E-Commerce (February 14, 2009)".

    Have you ruminated on the value are you sitting on?

    In my vision I see the SBA paying you to look over the housefiles of millions of small businesses, helping them identify candidates for reactivation efforts.

    Fascinating stuff.

    On a side note you post too often. I cannot keep up. It usually takes me several days to digest one of your posts and I find myself falling behind in the exercises you set us.

    Cheers

    ReplyDelete
  2. Mr. Newman, I actually use Zip Code Forensics as a way to start working with different companies. In time, I get to work on Multichannel Forensics projects, so it has been a good way to give something to folks for free, and then in some instances I get paid on other projects.

    ReplyDelete
  3. derek.newman4:08 PM

    Mr Hillstrom,

    I think I have misunderstood the ZCF product.

    May I confirm that Zip Code Forensics has 1 spreadsheet and a number of images illustrating zip code characteristics?

    I was under the misguided impression that there was a free spreadsheet for all zip codes.

    I apologise for any misunderstanding caused and I wish you a good day.

    Cheers

    ReplyDelete
  4. My clients send me a spreadsheet that has one row per zip code, with their annual sales for that zip code.

    I incorporate their findings into the overall model, and then re-score every zip code into one of six different segments.

    And then, I send the client a file that has one row per zip code, with one of the six segments assigned to each zip code.

    ReplyDelete

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