Back when I started my business in 1988, we were using space advertisements in national magazines to generate leads — and were astounded by the amount of money we were making. Then we met our mentor, the man who introduced us to direct mail… and within a few months, we were making literally 25 times more money than space advertising earned us. Now we mail out millions of pieces of mail every year, because direct mail marketing is still the easiest way to make money that we know of.
It’s an exciting medium. Once you start getting into direct mail marketing, you’ll never go back to any other medium in a serious way. Oh, you might still do other things when it comes to marketing and advertising, but you’ll always come back to direct mail. Someday I hope you can experience the thrill of sending out millions of pieces of direct mail and then getting tens of thousands of them back, along with cash, checks, money orders and credit card authorizations for your products and services.
Most direct mail experts tell you to go to the reference section of your library and go through the Standard Rating Data Services (SRDS) volume — assuming they have one — to find a good list manager. The SRDS is the big trade reference book that contains all the mailing lists that are for rent; they do a write-up on each of the lists and the list managers, and you can do your research there pretty simply. But I’ve got a simpler way that works better for me. You see, the problem is that all the big list managers make all their listings look the same. They’re all trying to get you to rent those lists, so they say all kinds of great things. You don’t know who to believe. Therefore, you’re better off hiring a good mailing list broker to go out and find you lists to rent. Trust their opinions; they’re working on your behalf. Now, not all the lists you test are going to work well. But as long as you constantly test new lists that your broker suggests, you’ll find that small percentage of them that do work well, and then you can add those lists to your arsenal.
Work with one or two brokers who have good reputations, who are honest people with integrity, and let them go out there and stay on the telephone all day, smiling and dialing and talking to other list managers and other list brokers. That’s really how simple it is with us. They’re looking out for you, trying to do everything possible to get us good mailing lists that we’ll keep using and re-renting from them, because they get a nice little percentage off the lists they find and rent for you — generally 15-17%. It’s worth the cost, which you should be more than happy to pay because they’re providing a good moneymaking service for you.
Although you’re usually required to rent a minimum of 5,000 names from a list, that doesn’t mean you have to mail to all 5,000 at once. You can rent ten different lists, representing 50,000 names, but may only actually test a couple of thousand from each list. If it works, you can go back and mail the other 3,000 from each list. In our case, for example, a listing company may have put up 20,000 names during a particular quarter, and we’ll rent 5,000 as a test. We’ll test 2,000 as a mailing, and if that works we’ll quickly go back and mail the others, plus we’ll get the other 15,000 they’re offering. The next time they come out with a quarterly list, we may still take baby steps until we’re comfortable with them.
Now, sometimes list owners or managers will give you only the very best names on the list. Those names will work like gangbusters for you, then you’ll go back and rent the other 45,000 — and those names won’t even seem like they’re from the same list you tested to begin with. So there are some sharks swimming in the marketing oceans that you have to watch out for. If you work with a good mailing list broker, they’ll keep you away from the dishonest people as much as they can.
Now, keep this in mind: renting and testing lists is a front-end business effort, intended to bring new customers into the fold. That means that you won’t always make a profit or even break even on the very first sale you make to a customer. Rather than view this as lost revenue, look at it as an investment towards future profits-one cost of doing business. That’s how the companies that are making the most money in this marketplace do it. They’re all investing huge amounts of money toward future profits. If the profit potential is excellent, it might be worth spending $100 to attract a customer to a $50 promotion, because the back-end, where you really make your money, shows real promise.
Most people aren’t aggressive enough with their direct marketing. They should be willing to invest more money in front-end, new customer acquisition, and not worry about breaking even or showing a profit. All of the money’s on the back end, so what you have to do is get as many customers as possible to raise their hands the first time and buy something from you, or at least send away for something you offer. Build your list as big as you can, because the real business starts after that first sale. That’s when you start kicking in all of your back-end marketing, and again, that’s where all your profits come from.
Admittedly, the front end is a tough business. That’s true anytime you try to do business with people who have no existing relationship with you. They don’t know you and they don’t trust you, so it’s always going to be difficult to make sales to those people at a profit. This is a very important lesson to learn. If you’re going to be aggressive with your marketing, then for every initial sale that you make at a $100 level, you’d better be willing to spend two or three hundred dollars to make that sale.
Now you’ve got a deficit for every customer you’re bringing in, so you’ve got to make up that money as fast as you possibly can so that you break even as quickly as possible. That becomes the game. Once you break even, you’ve got that customer for free; that’s how I look at it. You’ve got somebody who trusts you, and you know what they’re interested in, because they’re voting with their checkbook. When somebody sends you money, what they’re really saying is, “Hey! I want what you have so bad I’m willing to give you my hard-earned cash.”
One thing that you have to do with direct mail is track the lifetime value of each customer. This allows you to segment your customer base, so you can send likely offers to your best customers first to see how well they’ll fly with your other customers. At the beginning you’re sitting there thinking, “Okay, I’m going to go out and I’m put this offer on the table. I know that if I can create a customer with this offer, then based on my previous success, that customer becomes worth ten, twenty, or even thirty times that amount.”
Why does this work as well as it does? Because in many market s, you’re working with gung-ho buyers. You’re dealing with people who will come back again and again and buy more of whatever you’re selling. That’s one thing that makes such marketplaces so exciting. Therefore, whatever it takes to get that customer one time, to develop a relationship with them, to let them know who you are and to give them a taste of what it is that you sell — that’s just the first step in a lifelong series of re-purchases they’ll make from you. And as you educate your customer, the offers can become larger, more extensive, and more valuable. In other words, you can keep asking for more and more money.
The first thing you need to do here is make sure that the first product or service you sell to the customer is top quality, so it really makes an impression on them. From that point forward they’re going to be more apt to buy from you again. Many marketers out there base their business on this profit-funnel concept, where you sell somebody something small and then you ramp it up. Maybe you start with a $17 product, then proceed to a $47 product, then on to $97 and $147 products. Later on it may be $1,000, $2,000, or $5,000. Now, you can start a new customer with a big-ticket item without much fallout if you’re very careful, but I’d recommend offering a mix of different prices so that people can start where they’re comfortable. If I could do nothing but sell products and services for $3,000 or $5,000, or course I’d do it — but that’s not entirely reasonable. We do have products and services in our overall mix that sell for prices that high, but there are a lot of people in our customer base who just don’t have that kind of money, so it’s nice to have a range of different prices of products and services.
Be careful to keep offering a mix of products, because once you get a taste for selling things that are high dollar, you’ll never want to go back. One of my weak areas used to be the fact that I was hesitant to try selling information for thousands of dollars. But once I broke through that fear, all I wanted to do was sell things at high prices. This hurt the company, because it really is better to offer a nice even mix that just about any customer can afford — so I learned that lesson quickly.
But don’t hesitate to offer high-dollar products, because you’ll always have some percentage of customers who can afford them and who are willing to pay for them. If you don’t offer high-dollar products to these people, you’re losing money.