Pushing The Envelope
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You've got a great product you know will sell faster than hotcakes at a pancake breakfast. But how do you get it to your customers if you aren't interested in opening a storefront to sell it? The modern, convenient and increasingly profitable way: through the mail.
According to estimates furnished by Maxwell Sroge, president of Maxwell Sroge Co., a mail order business consultancy firm in Evanston, Illinois, the mail order marketplace more than doubled between 1991 and 1996, rising from $180.66 billion to $413.22 billion in annual sales.
The numbers don't lie: Mail order is an attractive start-up opportunity for the entrepreneur of the '90s, says John Schulte, chairman of the Minneapolis-based National Mail Order Association (NMOA). "One of the most cost-effective ways to launch a business is using mail order methods," Schulte says. "You've got to have a specific niche, though--an area that's too small for big companies. Your product should have an easy-to-identify audience that's easy to reach and sufficient in numbers to support you."
A culinary enthusiast, Jim Blair found his own niche in the industry. He received a Mexican cookbook as a gift, but found the spices he needed for the unique cuisine difficult to find near his Avalon, New Jersey, home. He often found himself driving 80 miles or more to find the particular chile peppers or marinades he needed for his recipes.
"I thought, `Maybe I can supply other people who are in the same boat,' " Blair recalls. "I inquired at a Mexican grocery store if they would sell to me at a discount so I could afford to resell the merchandise, and they agreed."
Blair first placed an advertisement in an epicurean magazine. "The ad was costly, and very little happened," he says. "It suddenly occurred to me the way to go wasn't to buy advertising space, because we couldn't afford it, but rather to get free PR from publications that were looking for information to fill their pages."
Blair compiled an information packet describing the Mexican products he stocked, and mailed it out to newspapers and regional magazines he thought might be interested in CMC Co., the exotic spice catalog he started in 1988. "The New York Times picked it up right away," he says. "We got hundreds of phone calls requesting copies of our catalog. We've pursued that mode of publicizing our products ever since, and as a result, we're now mentioned as a source in perhaps half a dozen cookbooks, and, periodically, various epicurean magazines--including Martha Stewart Living."
The Importance of Mailing Lists
Over the years, Blair has amassed a mailing list of more than 35,000 people who've requested his catalog. The catalog is updated twice each year, and Blair mails about 6,000 copies per month.
Building and maintaining an effective mailing list is the key to success in a mail order business. Fliers and classified advertisements in local newspapers and trade magazines are great ways to advertise your products to the public--and tremendous ways to collect names for a mailing list. "For each person that buys or shows interest in your product, you capture their name, address and telephone number," Schulte says. This information, once entered into your company database, becomes the foundation for your mailing list.
If you don't have the time or resources to compile addresses one by one, there are other low-cost methods to get your catalog business rolling. One way to start your company, according to Katie Muldoon, president of Muldoon and Baer Inc., a catalog consultancy firm in Sugarloaf Key, Florida, is by renting a mailing list. Another way is to create an advertising and publicity campaign to promote your catalog. Such a campaign might include taking out ads in a publication related to your product, collecting the names of those who respond to your ad and using this list of names as the basis of your first mailing list. While the initial cash investment is generally higher for the mailing list route than it is for the advertising and publicity campaign route, the former approach is generally a faster way to find customers.
"The best thing to do is network by going to conferences and seminars sponsored by the Direct Marketing Association (DMA)," says Muldoon, who's also the author of How to Profit Through Catalog Marketing (NTC Publishing, $90, 800-323-4900). "It's the largest association in the industry, and it has different meetings every month." (See "For More Information" on page 28 for contact information.)
You can also find plenty of help if you've got a computer; technological advances have leveled the playing field in the retail marketplace. "We have all sorts of technology available to the small guy now," Schulte says. "Bigger companies had the advantage when the costs were high. Nobody could afford a computer or a programmer but the big companies. But nowadays, you can buy helpful computer programs right off the shelf."
To manage his extensive mailing list, Blair uses PreSort Pro software (MCS Inc., $995, 301-990-6500), which works in conjunction with his database to presort first-class and standard mail, print reports and generate mailing labels. "We wouldn't have been able to conduct our business without it," he says.
Schulte recommends several database-management programs. The first, Order Pro (PC Innovations, $299.99, 800-774-6668), is a mail order processing program with built-in invoicing, inventory and credit-card processing components. Response Doubler (Advanced Business Stategies Inc., $395, 508-350-9770) can help you increase sales by tightening your mailing list using response rates and closing ratios. Mail Order Wizard (Haven Corp., $795, 800-676-0098) allows you to process orders, control inventory and manage your mailing list.
"The technology available can help weed people out of your mailing list who haven't bought in a year or who no longer live at the address you have on file," he says. "You can get more precise with your database--even target mailings to people who bought a certain product."
A Growth Industry
The mail order industry has grown immensely in the '90s, and industry pundits predict that the pattern will continue. "In the business-to-business area, computer hardware leads the growth, with software and peripheral items following," says Sroge, whose company produces the industry newsletter "Non-Store Marketing Report." ($275 for an annual subscription. To order, call 847-866-1890.)
"In the consumer area, casual apparel is the main growth area," Sroge says. "With 1997 off to a strong start, we predict that it will be the biggest year ever in apparel sales by mail." Other hot sellers include office supplies and equipment, records, tapes, sporting goods and home-improvement and decorating items. "The growth comes not only from new business, but because people are altering their shopping habits," Sroge says.
Schulte agrees: "Dual-income families use their leisure time to look through catalogs," he says. "Catalogs offer a better selection, shoppers generally get more help from people on the phone than they get in a store and, since most catalogs specialize, the sales staff knows their product."
Companies can spend $200,000 to $300,000 to launch a full-blown mail order business today, Sroge says. Thrifty entrepreneurs, however, are getting started for much less.
"In most cases, people going into a mail order business create some kind of catalog," says Sroge, also the author of The United States Mail Order Industry (NTC Publishing, $54.95, 800-323-4900). This is where the high costs begin to accrue. "The cost of professional design, photography and printing is at an absolute minimum of $30,000. The flip side is that, if someone wants to create a catalog on their computer, print it at home and mail out a few thousand, that can be done, too."
In addition to production costs, there are mailing costs to consider. The U.S. Postal Service (USPS) has announced a rate increase for 1998, Schulte says, which will include regular first-class postage, bulk mail and other shipping costs.
To compensate for occasional rate increases, Blair adjusts his delivery fees and is planning to start charging for his catalog in the next year. "The fee--only a dollar or so--will be refunded when the customer places an order," he says. "This will help us qualify the genuine customers who request our catalog."
According to Garry Rodriguez, acting manager of the U.S. Postal Business Center in Newark, New Jersey, there are three other ways to reduce mailing costs. First, keep your mailing within the dimensions of the USPS' letter classification (6 1|8 inches by 11 1|2 inches, with a thickness no greater than 1|4 inch). Pre-sort your mail and use a bar-code system to automate your procedures. (Smart Marketing Suite software has a do-it-yourself bar-coding system in addition to its other, standard mailing features. From Group 1 Software; $1,895; 800-368-5806).
Rodriguez also recommends researching mail consolidation companies--firms that pre-sort mail and deliver it to bulk-mail centers around the country. To locate such companies, look in the Yellow Pages under "mailing services."
Chet Dalzell of the DMA says many mail order marketers have downsized their mailings in an effort to save on postal rates, which he says have risen 75 percent in the last decade. Conducting test mailings, he says, can help you check rented mailing lists before investing in major mass mailings. Getting rid of out-of-date addresses and making sure mailings are reaching customers who've moved is another method of economizing; the fewer wrong addresses you have, the fewer the mailings that will end up in the trash.
The mail order industry offers entrepreneurs a vast field of opportunity. Industry experts and successful entrepreneurs both agree: To be a success, make sure to sell something you know about; carefully research the costs associated with your business; keep your database maintained; and closely track your sales.
For More Information
Direct Marketing Association
1120 Ave. of the Americas
New York, NY 10036-6700
National Mail Order Association
2807 Polk St. N.E.
Minneapolis, MN 55418-2954
Glen Weisman posed the question, "Should you buy a franchise, a business opportunity or go it alone?" in the May issue of Business Start-Ups.
CMC Co., P.O. Box 322, Avalon, NJ 08202, (800) CMC-2780
Maxwell Sroge Co., 522 Forest Ave., Evanston, IL 60202, (847) 866-1890
Muldoon and Baer Inc., 158 Shore Ln., Sugarloaf Key, FL 33042
National Mail Order Association, 2807 Polk St. N.E., Minneapolis, MN 55418-2954, (612) 788-1673
U.S. Postal Business Center, 494 Broad St., Newark, NJ 07102-9335, (201) 468-7066