Friday, January 25, 2008

The Direct Mail Business Model

Wired Magazine has a great feature this month called "Why Things Suck!" which I absolutely loved. One of the things that suck as you might guess is Junk Mail. See where I might be going with this post yet? I pulled a few of the more interesting parts of the Wired article here for easy reference - but check out the entire thing - it's worth a look.
Your name is on a list
And you have no one to blame but yourself. You refinanced a mortgage or got a new credit card. You subscribed to a magazine or donated money to a charity. These organizations sell their lists to aggregators.
How dare you donate money to a charity? Sheesh.
The math kicks in
Let's say you're soliciting donations. You buy a list of 5,000 names for $500. It costs you $2,500 in labor and postage to mail your plea. Of those 5,000 envelopes, 94 percent will be recycled and 5 percent will be misaddressed. But 1 percent will prompt a response. That's 50 people. And that determines how much you have to earn from each one: You spent $3,000. You need your 50 suckers to cough up an average of $60 each to break even. (It also works for email, though the response rate is much lower: 0.2 percent. But sending junk email — spam — is nearly free.)
Does this look at all familiar? I thought so! Look, I'm not saying you should stop (not unless you want to stop raising money). I just don't yet see how our past and our future is going to reconcile. If the customer is in control, than this just isn't going to work for much longer.

PS -I hope you didn't miss the e-mail kicker at the end (0.2 percent?!)


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