Keep the House Full
The dangers of slowing your prospecting ... and strategies for bringing in new business Necessity, as the saying goes, is the mother of invention. But it's also the mother of action, for nothing breaks a pattern of inertia like dire consequences.
A necessity for new names is the catalyst behind the recent uptick in prospecting activity witnessed in the list industry. After close to two years of working every last dollar out of their customer files, many marketers simply have nothing else to do but look for new customers.
"The problem is," says Susan K. Jones, professor of marketing at Ferris State University and partner of The Callahan Group, "when people start to milk their customer list, there is a finite game to it." You have to replace names that leave your target because of age, lifestyle change, competitive offers and other reasons, she explains.
Steve Hitchcock, president of Mal Warwick & Associates, a direct marketing agency in Berkeley, CA, that works with nonprofit organizations, concurs. Attrition rates for nonprofits, he notes, are fairly consistenta minimum of 10 percent and as much as 20 percent of a housefile can expire yearly. This is due, in part, to the fact that most nonprofits have an older customer base that, basically, dies off.
"You can see how, if you haven't done any prospecting, in a few years you will be left with only a handful of donors," Hitchcock says.
Make a Plan for Prospecting
Attrition rates are affected by all kinds of variables, so it's important to track your customer drop-off carefully. Normal attrition is likely to follow a discernable and steady pattern, but major fluctuations can occurand are a signal that something you're doing is driving away your customers.
Jones offers direct marketers two basic methods for tracking attrition:
1) by group, such as 30-day hotlines, three-month buyers, six-month buyers, etc.; and
2) by individual, to see when the last purchase occurred.
With the first method, she points out, the marketer needs to determine groups based on the company's particular buying cycle. A seller of business software likely will expect second purchases on a different timeline than a seller of magazine subscriptions.
Another important variable to keep in mind when tracking attrition is customer acquisition source; if a customer was brought in via e-mail, Jones notes, you might be able to afford more sales communications via this low-cost channel than through, say, direct mail.
For nonprofits, the giving cycle is nearly as fixed as the attrition rate. "An overwhelming majority of donorsmaybe even 80 percentwill make only one gift a year," Hitchcock says. Thus, nonprofits must acquire donors throughout the year to spread out cash flow.
To keep the stream of prospective donors continually flowing, Hitchcock's firm advises its nonprofit clients to build regular prospecting activities into their annual programs. While it's ideal to mail acquisition efforts every month, he encourages all nonprofits to drop prospecting campaigns at least three times a year.
Like the nonprofit sector, the magazine publishing industry works mostly with one sale per customer on an annual basis. And it simply can't wait to see which customers will not renew before building up new sources to replace these lapsed customers.
One of the most disturbing circulation trends of late is the focus on generating subscribers at the cheapest cost, says Elaine Tyson, president of Tyson Associates, a circulation consultancy and direct mail agency in Ridgefield, CT.
This is a shortsighted strategy, she explains, because it fills the housefile with customers who are hard to renewwhich means that magazine publishers often wind up spending more on the back end to get these names to renew and pay up, as well as to replace those who don't come back.
When you bring in customers who don't renew well, Tyson continues, you need to continuously watch your attrition rate to be sure you're taking steps to keep your circulation base steady.
"You can't replace 30,000 names that dropped off with trade show attendee names or some rental list," she explains. Some of these sources will not be appealing to advertisers and/or just won't provide the volume you need.
A good investment of prospecting dollars, Tyson notes, is generating gift subscribers. These customers tend to renew well and pay well.
Go Get Your Prospects
The most obvious source of prospecting is rental lists. But you should consider expanding your source of new names beyond those gathered through selling efforts.
You need to develop a two-step program. When it comes to lead generation, says Jones, the more qualifiers (e.g., information solicited, a small fee charged for a product sample) you build into the offer, the fewer names you will garner. But, these names will be more qualified prospects for future sales efforts.
Jones advises direct marketers to analyze their lead generation programs over time. This should entail tracking not only sales conversions, but also sources, lifetime value and number of contacts until conversion to identify patterns among your better customers that will direct your future prospect-building efforts.
When it comes to generating prospects, the best sources for nonprofits are space ads in newspapers and magazines, insert media, events/speaking
engagements, and each nonprofit's general phone inquiries, says Hitchcock.
He adds that some nonprofits do well with Web marketing, such as ad banners and affiliate programs, but this medium is still tricky for most fundraisers because the typical donor is older and prefers to be reached by and to donate via mail.
Donors tend to be readers; so the logical response-generating offer is information related to the cause, says Hitchcock. For example, Bread for the World stirs up prospects with a pamphlet titled, "How to End World Hunger."
Not only does such a freebie pull in prospects, but it also qualifies them. Hitchcock notes that these "warm" prospects are 10 percent to 15 percent more likely to respond to a donation request than a list rental prospect. But, he adds, there is a caveat: They are not proven to be direct mail responsive.
Two-step programs are not sensible for most publishers, says Tyson, but there is one lead-generation strategy that all publishers should be testing:
e-mail collection. It offers an inexpensive channel for lengthening the communication cycle with customers and prospects. And if you solicit permission to share these names with other marketers, this file becomes a source of extra revenue, too.
Watch Out for Prospect Attrition
Don't let your investment in generating leads go to waste. If anything, prospects have a shorter shelf life than customers because they don't yet have a strong connection to your company or organization.
Hitchcock reports a huge difference in response rates between people who donate within 24 months of initial contact and those who donate after 24 months, and there's even a marked difference at the zero- to 18-month mark.
With the prospect file and housefile at constant risk of attrition, all the more reason to continue testing different bait and fishing new waters.