A Little Restraint

A little restraint is required. Just because, theoretically, you can manage all your customers using your database does not mean that you should. Managing the top 20 percent is quite easy. Managing the next 20 percent is a bit harder. Managing the bottom 20 percent may not be worth the effort. In direct response, 80 percent is about the most important number. Using this number, you can increase your response and your sales while lowering your cost per sale. Let’s see how valuable 80 percent is to you.

Gold customers (the top 20 percent of your customers) bring in 80 percent of your revenue. These people are really your company. Lose them, and you lose it all. Spend a small amount of money on retaining them, and you keep 80 percent of your total business. How does this work?

When you hear people complaining that database marketing is too expensive, you will find that they are talking about 100 percent. Suppose you develop a retention program consisting of birthday cards, thank-you letters, appreciation emails, and special customer services and benefits for certain customers. If you were to do these things for all your customers, the costs would be quite high. The benefits you would receive might not pay for the cost of the extra services. But why not concentrate on the Gold customers—those who bring in 80 percent of the revenue but represent only 20 percent of the customers? The cost of a program for Gold customers is only one-fifth the cost of a similar program for all customers, but it safeguards 80 percent of your revenue.

The 80 percent rule also applies to your database cleanup. Your database is a mess. Many of the names and addresses are wrong. Many entries lack phone numbers or email names. Cleaning it up will be costly. But wait a minute. Why clean it all up? Why not clean up only the easiest 80 percent? Your programmers will tell you that those 80 percent can be cleaned up in an afternoon. Getting the remaining 20 percent correct will take several months. Go ahead and clean up the 80 percent right now. Get it done. Then clean up the remaining 20 percent at your leisure, in the most inexpensive way possible or, better yet, apply the 80 percent rule to them. What does that mean? Run through the remaining 20 percent of bad addresses and pick out the Gold customers. Clean those up. As for the rest, forget about them for now.

You want to send out emails to your customers. But some of them are on AOL and can read only text. Others can read HTML. Still others want their copy in Spanish. It is a big job, costing a lot of money and resources. How can you solve this problem? Use the 80 percent rule. Pick the easiest 80 percent of your customers and get your message off to them right away. If you have a consumer database, AOL probably represents 80 percent. If it is a business-to-business (B2B) database, 80 percent can probably read HTML. Design your email for the 80 percent and get something done now. If the email is a success, then figure out how to reach the remaining 20 percent. If it is a failure, don’t bother with the remainder. Either way, you have kept your costs down.