URL: http://www.entrepreneur.com/startingabusiness/businessideas/startupkits/article37946.html

Mail order is one of the hottest industries right now. It's not new--in fact, it can be traced back more than a century. But it's in demand, by consumers and entrepreneurs alike. Why? Reasons abound, both personal and commercial.

In today's marketplace, most customers can easily access any number of retail stores, but they don't have the time. More and more Americans are part of a two-income household, a team stretched taut between work and child-raising, with scant time for leisure--much less shopping. These people want to spend their off-duty hours in more rewarding pursuits than traipsing through the mall. Single parents, stretched even further to be in several places at once, have reached the same anti-shopping conclusion. And Americans as a whole have shed the more-is-better consumerism of the 1980s in favor of meeting their profound desire for simple quality time at home with family.

Stat Fact According to the National Mail Order Association, Internet sales recently netted $2.4 billion in annual mail order dollars. The hottest sellers? Computer products, books, recorded music, gifts, financial services and general merchandise.

Instead of spending your precious free time at the mall, you can pore through the pages of mail order catalogs that offer just about everything you can imagine--with your feet up, a cup of coffee at hand, and the kids and spouse either "shopping" with you in similar comfort or somewhere else in the house happily going about their own affairs.

From A Business Perspective

So far, we've discussed mail order from the consumer's perspective. Now let's take a look at the industry from the businessperson's point of view. What do we see? An industry that's potentially lucrative for the savvy, hardworking entrepreneur and has the advantage of requiring relatively little in the way of start-up expenses, specialized skills or intensive apprenticeship--as opposed to, say, professions like brain surgery, high rise construction or even restaurant management.

In order to be successful in mail order, you'll need a generous measure of hard work; a concerted and constant study of the industry as a whole, as well as your particular niche; and the ability to roll with the punches.

Mail order offers the option of starting your business part-time. In fact, many direct marketers insist that moonlighting is the wisest way to go. John Schulte, chairman of the National Mail Order Association (NMOA), believes traditional and Internet-based mail order are the last frontiers for the little guy. "You can find ways to make things happen part-time from your kitchen table," says Schulte.

If you start out part-time, you can allow yourself on-the-job training without on-the-job financial anxieties. And if you don't want to sever the ties with your full-time employer until you know you can make it on your own, mail order is an ideal business for you.

What else makes mail order shine for the start-up entrepreneur? You don't need a lot of inventory. You can sell merchandise through a drop-ship arrangement, in which a third party such as a manufacturer or wholesaler sells you the merchandise but keeps it in his warehouse and delivers it to your customer for you after you've made the sale. You can also start out with one product or service and keep your inventory manageable as you grow.

Mail Order Vehicles

The Direct Marketing Association (DMA) estimates that each year more than 131 million Americans order a product or service by phone or mail. Why are we including phone sales in our mail order figures? Because mail order is actually an inaccurate moniker for direct marketing, which includes any form of shop-at-home-or-office order placement, from mail to telephone, fax and e-mail.

What are other forms of mail order sales?

• Direct mail is really just another name for mail order, but it usually refers to anything that's not a catalog. This includes sales letters (like Publishers Clearing House), brochures, fliers, postcards and any other sort of printed materials you can send through the U.S. Postal Service to elicit a mailed, telephoned, faxed or e-mailed customer response.

• The Internet ranks as the most exciting mail order vehicle since the invention of the catalog. More and more mail order entrepreneurs are turning to the Internet as a supplement to their catalogs or are foregoing paper catalogs altogether. Potential customers have come to expect companies to have a Web presence, especially for any computer-related product or service. But even if your company isn't technology-based, a Web site makes sense. Everything from gift baskets to insurance to concrete--even airplanes--can be purchased online, and people who are Net-savvy use the Web the way they would their local Yellow Pages.

• TV commercials are another form of mail order: you know, the ones that advertise knives that slice through concrete or the greatest recording hits of your parents' generation and provides the ordering information on screen. TV advertising can be less expensive than you might guess. The price of TV time depends on various factors, including the size of the market, the length of your ad, the time of day or night your ad airs, the program rating and how much advertising you buy. Prices also vary according to whether you're advertising on a local independent station, a network affiliate, a cable channel or public access television.

• Radio commercials also constitute mail order. Advertising on big stations in major markets can be cost-prohibitive for mail order newbies, but you can buy effective and affordable ad time from more intimate local stations for less money than you might think. These smaller stations make up the majority of commercial radio stations in the United States. Their low-power signals limit their geographic reach, but this isn't necessarily a minus. Since the programs on local stations are specifically designed to appeal to their own regional audiences, your advertising can be more closely targeted as well.

• Classified newspaper ads usually run from three to 10 lines in length, are one column wide, and excel at minimalism: They have no line art, no photos, no graphics of any kind, and the verbiage is as brief and concise as a Vermont farmer's. So what makes them valuable? For starters, they're very inexpensive yet cover a relatively wide audience. And because they're so inexpensive, they're a terrific way to test new products and markets.

• The display ad is a vehicle of a different sort. Because it's larger and usually incorporates photos or some other type of artwork, it's more expensive, but it can be extremely effective if you're advertising a high-end product.

To be successful in mail order, you must define your own special market, one where a genuine need or desire for your products or services exists, and one where the competition isn't overwhelming. Start by thinking about what you know, what you enjoy, and what your potential customers need or want. Then match your ideas against these three guidelines:

1. The products or services you sell must be things you know and are enthusiastic about. If you're an avid snorkeler or scuba diver, and you want to sell products to other divers or market diving-adventure vacations, great! But if you hate water, the thought of salt air makes you seasick, and you're getting into the specialty because somebody told you it was a good idea, then don't make waves. You'll very likely fail. Instead, you need to find something you understand and enjoy.

2. You must have a large customer base to draw from. If you know everything there is to know about flies, you find them fascinating, and you have a huge collection under glass, that's swell. But you're not going to find many people who will want to order fly merchandise. If, on the other hand, you're into fly fishing, you'll have a huge number of enthusiasts all over the world from which to draw.

Stat Fact Business-to-business catalog sales are enjoying an upward trend. According to the Direct Marketing Association, companies that sell to other companies have a 7.3 percent annual growth rate, and there's no slowdown in sight.

3. You must have a well-defined specialty. You may have a reputation as a shop-'til-you-dropper, and your friends and family may turn to you as the gift-chooser of choice, but it's unlikely you'll succeed with a broad catalog of gift items or preppy clothing. There are already too many really big companies out there doing the same thing, and they're too huge to compete against. But if you choose gifts or clothing for a specialized market, say handicapped children, the elderly, cat lovers or gardeners, you're moving in the right direction.

Selling Services

Generally, we'll discuss mail order products in terms of merchandise, but keep in mind that what you sell can just as easily be a service instead of a product. According to the DMA, services account for almost 40 percent of mail order revenue. While financial services make up the biggest sector of direct-marketed services, there are scads of other options, including photo processing, travel packages, consulting, genealogical research and real estate.

The only major difference between selling a service and selling a product through mail order will come in terms of inventory. If you're selling tours to Costa Rica, for instance, you're not going to have a stack of tours sitting on shelves in your back room; but if you're selling shirts made in Costa Rica, you probably will have boxes full of shirts waiting to be sold and shipped.

The other thing to consider with service-based mail order is the matter of accessibility. You can sell those Costa Rican tours because they can be handled long-distance. You don't need to be close to your customers to perform the service. Some services, however, like lawn care, require you to be conveniently located. So unless you've got a clever take on how to circumvent geography, you can't market this type of program to consumers outside of your immediate area.

Bestsellers

What products and services are runaway bestsellers right now? Industry experts agree that computers and their peripherals top the list. Other than that, the answers may surprise you. Take a look at these top-selling mail order categories, courtesy of John Schulte of the NMOA:

• Art, drafting and printing supplies
  
• Athletic equipment
  
• Business equipment
  
• Children's clothing
  
• Educational materials
  
• Fishing equipment
  
• Global marketing services (especially in Europe)
• Hardware
  
• Health and fitness products
  
• Home medical supplies and equipment
  
• Industrial maintenance and materials handling
  
• Internet investment brokerages
  
• Library and school products
  
• Men's clothing
  
• Prescriptions
  
• Software
  
• Specialty products and gifts
  
• Stationery specialties
  
• Tobacco products
  
• Video cassettes
  
• Vitamins
  
• Women's big and tall apparel

One of the Catch-22s of being in business for yourself is that you need money to make money--in other words, you need start-up funds. With mail order, you can start off with a much more manageable investment than your peers in retail or manufacturing. Because you can begin as a one-person show in your own home, you automatically eliminate expenses like rent and employees. As an added bonus, equipment costs are relatively low: Your major outlays will be for a computer, software, two to three phone lines, a phone with multiline capability, a fax machine and Internet access. This whittles your other initial expenses down to inventory and advertising--which, if you plan to go the catalog route, can be considerable.

But don't get too carried away with the idea of starting on the proverbial shoestring. There's a downside, which is that starting small can limit your company's potential growth. "You really have to have backup in terms of finances," advises Greer T., a cataloger in Canton, Ohio. "It always costs more than you think it's going to. A lot of businesses fail because they don't have the financial backup."

For now, let's say you can expect your start-up costs to range from about $5,000 to somewhere over the $250,000 mark, depending on what sort of operation you start with. If you plan to start small, with a brochure-sized catalog or a print ad, your start-up figure will be relatively low. If you decide to start out with a 48-page catalog to rival those of Lands' End and J. Crew and mail it to 100,000 people, you're looking at a lot more money. "It's very easy to eat up $250,000 to $500,000 starting a catalog today," Sroge says.

"Can people do it cheaper than that?" Maxwell Sroge, a mail order consultant, asks. "Sure." You can do a catalog from your kitchen table, design it yourself on a computer and go with a much smaller mailing. You're not going to go from nothing to Lands' End, with its annual nine-figure revenues, overnight--but then, do you need to?

One of the great joys of running a mail order business is that you can arrange your workload around any schedule you choose. Some mail order entrepreneurs work best in the early morning; others pace themselves throughout the day. The hours they spend and the time frames within which they structure those hours are as individual as each entrepreneur.

If you took an X-ray of any mail order company, you'd see three distinct arms:

• Sales and marketing
  
• Order processing and fulfillment
  
• General management and administration

In most start-up companies, however, these three arms are all attached to one body--the owner's. As a mail order entrepreneur, you'll have days where you're not only using (or wishing you could use) a third arm, but wearing a dozen different hats: product development director, advertising campaign director, graphic designer, copywriter and marketing manager. You'll also be in charge of (and sole employee in) the order processing, customer service and fulfillment departments. This is all in addition, of course, to your administrative tasks as bookkeeper, accountant, file and mailing list manager, and supplier liaison.

What can you expect to make as a mail order entrepreneur? The amount is entirely up to you, depending only on how serious you are and how willing you are to work for the rewards. One of the entrepreneurs we interviewed brings in annual gross revenues of $150,000; another brings in more than $1 million. Schulte of the NMOA says annual incomes for the industry generally range from $40,000 to more than $100,000, depending on how long the business has been in operation and how much has been invested in building the business.

By a mail order company's fourth or fifth birthday, Schulte says, about 60 percent will find themselves in the $0 to $40,000 bracket, about 25 percent will fall into the $40,000 to $100,000 category, and a final 15 percent will land in the $100,000-plus range.

The Minneapolis-based direct-mail expert estimates that it takes two to four years to break even with a mail order operation. "Profitability," he advises, "comes at about the same time, in three to five years. You want to start breaking even right away, but the real profits come when you have a solid customer base that buys from you with some frequency. It takes a few years to build up this base."

And while success doesn't come overnight to most, it doesn't come at all to some. "Only about 20 percent make it," cautions Schulte. This isn't a reason to quit before you start, but it's a darn good reason to get everything you can going for you before you start.

Figuring Your Mark-Up

The norm in the mail order industry is a markup of 300 to 400 percent on each product to cover the cost of advertising, mailing and product manufacture or purchase. This is an excellent rule of thumb, but keep in mind that you've got to take a variety of factors into consideration before coming up with your final price.

You should tweak your figures until you came up with a price that:

a) meets your customers' expectations of what a box made of gourmet chocolate, for example, should cost (too incredibly high or too implausibly low, and you lose your customers)
b) is comparable to competitors' prices for the same or similar goods
c) adequately covers expenses and provides a healthy profit.

One of the mail order maven's key tasks is to get that catalog or other vehicle to its ultimate destination--the customer. Classified or display ads will reach their targets through whichever newspapers or magazines you place them in. Radio and TV spots will hone in on prospective customers through the broadcast venues they're placed in. But what about catalogs and direct-mail pieces? How do you get a catalog or direct-mail piece aimed at dog lovers in the mailboxes of puppy-philes and not those of cat fanciers or professed pet haters?

You know the answer: through mailing lists, those Santa-sized rosters of names, addresses and phone numbers. But did you know that there are companies out there called list brokers, which exist solely to rent mailing lists? The savvy mail order maven not only knows this but also takes advantage of these lists to whisk catalogs straight into the hands of target customers.

A good list broker has hundreds of lists of qualified buyers and can pull out just about any criteria, or selects, you're interested in: for instance, people who own dogs, earn more than $50,000 per year, live in the Midwest, have high-school-age children, and have purchased something by mail order within the past six months.

Mailing list costs can vary tremendously, depending on what sort of list you're renting and how many selects, or variables, you want. First, you'll need to decide whether you want a compiled list, made up, for example, of people who by age and income might be Hawaiian cruise prospects, or a response list, made up of people who have actually purchased Hawaiian cruises already--those qualified buyers we mentioned.

Because the compiled list isn't as specific, it's cheaper. You can expect to pay an average of $50 per 1,000 names, says Daren Cicchillo of Lighthouse List Company in Fort Lauderdale, Florida. The response list, on the other hand, may cost as much as $120 per 1,000 names, plus $5 to $10 extra for each select you choose (age, income, geographic region, etc.). Business-to-business names can be even more expensive, Cicchillo says, because fewer people offer them, so they're harder to come by. Expect to pay $75 to $200 per 1,000 names for this type of list.

Advertising

Print ads are terrific vehicles for getting your message to your target market and come in one of two styles: classified and display. So with magazines in mind, let's start off with display ads, which usually feature some sort of graphics combined with the printed word and are found throughout a publication (as opposed to classifieds which consist solely of the printed word and are found only in the classified section).

• Display ads. If you've done your homework and chosen a niche you're familiar with and enjoy, you probably already know which publications will work for you--they're the ones your target audience reads and the ones you probably read, too. These are the best places to start because you already understand at least part of the demographics and psychographics of their readers.

Pick up those issues off your coffee table or night stand. Study them carefully. Do mail order ads do well here? Compare the number of "traditional" ads with the number of mail order ads. If mail order makes up a significant portion, you can figure that other mail order companies are experiencing success with the publication--which means it's a good place to advertise. Also check for repeated ads featuring products similar to yours. If you're selling a carburetor tune-up kit, see who else is selling the same kind of kit or other auto maintenance merchandise. If all the other ads are for something entirely different, you probably don't want to advertise there either.

• Classified ads. The major appeal of classified ads for the mail order maven is that they're far less expensive than display ads. Add to that the bonus of simplicity--there's no layout to design, no graphics to worry about, and no choice of fonts to obsess over. Add another bonus--defined interest. People who peck around in the classifieds are often there because they're looking for something in that particular classification: vacation destinations or collectibles or money-earning opportunities or whatever. It's also an inexpensive proving ground. You can test new products for relative pennies and, if the response warrants it, step up to a display ad.

The downside of classified ads is that you've got an extremely limited space in which to make your pitch, you have nothing with which to catch your prospect's eye except words that graphically look just like everybody else's, and you've got a much smaller audience to work with. Far fewer people read the classified sections than the editorial ones. And some mail order products just can't be sold effectively through the classifieds. High-ticket items, products or services that require lots of explanation, and products that don't lend themselves to two-step ads don't make good classified candidates.

Associations

• Direct Marketing Association
  
• Mailing & Fulfillment Service Assocation
  
• National Mail Order Association

Helpful Government Web Sites

• U.S. Census Bureau
  
• Federal Trade Commission
  
• U.S. Postal Service

Magazines And Publications

• Catalog Age
  
• Web-and-Catalog-News.com
  
• Target Marketing

Mail Order Consulting

• John Schulte & Associates
  

Mail Order Web Sites

• American List Counsel
  
• BToBOnline.com

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The contents of this Start-Up Kit are excerpted from How to Start a Mail Order Business, an Entrepreneur Start-Up Guide. Visit SmallBizBooks.com for more information.