March 10, 2008

Biznology Blog by Mike Moran

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How Do You Effectively Budget for Customer Acquisition?

I read a great post last week on the RKGblog on how to spend customer acquisition dollars wisely. Read it yourself, but remember that its audience is catalogers steeped in the world of direct marketers. That world has its own parlance that it trots out as shorthand to explain what they are doing. Internet marketers who don't have a direct marketing background might not understand the advice in this excellent post, because they are lacking the background. So, if you understand the RKG post, you're done for today. If not, you might want to stick around to get a background on two important direct marketing concepts that you can use to assess your acquisition budget on a regular basis.

The first concept you might want to get acquainted with is RFM—it stands for "Recency, Frequency, and Monetary"—a time-honored way for direct marketers to cull their mailing lists so that they identify their most valuable customers to lavish the most attention on. Web marketers from benefit from knowing how to apply RFM to the Web and from how to use RFM to increase the value of customers.

The other concept you might not be familiar with is Lifetime Value. When you are deciding how to allocate your acquisition dollars, wouldn't you like to acquire customers based on the lifetime of profit that a customer relationship will bring you, rather than simply the profit on the first sale? If much of your business is built on customers returning to you to buy more, you might want to a simple way to calculate Lifetime Value for your customers.

Sometimes the advice you get might seem a bit daunting, because it assumes you know more than you do. Don't be afraid to slog through the terminology and learn what it means so that you can absorb what the experts are prodding you to do. There's no reason that you can't be an expert Web marketer if you're willing to learn a bit of direct marketing background.

Posted by MikeMoran at March 10, 2008 4:37 PM

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Comments

Thanks for the kind words, Mike!

RFM is great and should be in every direct response marketer's toolkit.

Our our blog, we have a neat interview going up shortly with Kevin Hillstrom, an excellent blogger (over at minethatdata.com).

Kevin advise that the "new" RFM is RFMC, where "C" is "last order channel."

Indeed, he suggests "RC" (Recency-LastChannel) gets you 80% of the way there.

If folks want a good intro to RFM (or RC), check out Jim Novo's DrillingDown book -- top notch.

Cheers, and thanks again for the link and nice ink --

Alan

Posted by: Alan RImm-Kaufman at March 11, 2008 3:12 AM

You're more than welcome, Alan. In my book, I did share that you should use Recency alone if the full RFM formula is too complicated to calculate for your business, but the RC simplification seems just as easy to calculate as Recency and appeals to me as being a more accurate gauge.

I look forward to your interview.

Posted by: Mike Moran at March 11, 2008 3:15 AM