It’s not reasonable to expect that you will profit off of all or even most of your subscribers.   What you can expect is that a few of your subscribers will pick up for the majority of your list members.  We call them your best customers and you must value them as a precious commodity if you expect to make a living or turn a profit out of your line of work.  When you begin to lose any of your best customers you will know it because it will impact your bottom line.  The majority of your customers are good customers and this is equally true of your subscriber list.  However, you’re never going to be profitable relying on good customers alone.  You can expect to be marginally profitable off of good customers at best.  A hard truth you will have to live with in whatever you do is you will have bad customers no matter how right you run things.  If you have spent any considerable amount of time doing customer service the notion of a bad customer does not sit right.  But there have been times where you approach a situation using logic and reason.  You provide answers or explanations that are helpful or point in the right direction.  You spend considerable time and energy focusing your attention on a person and their concerns.  You give everything you have and no matter what you do you know it won’t matter.  That’s what’s meant by bad customer.

If you are running things the right way this number should only come down to a handful.   Still it only takes a few bad customer to demoralize your employees with excessive complaints or demands. If they are not dealt with properly they can hurt your business with negative word of mouth.  Also, they can be a drain on your resources and not allow you to focus on your best customers who you depend on to remain profitable. As someone looking to protect your bottom line,  especially in tough economic times,  you must always be on the look out for ways of turning good customers into best customers. At the same time you need to be cognizant of handling bad customers and looking for ways to turn these customers into good customers.

The 80/20 Rule

The 80/20 rule is often referred to as the Pareto principle after the Italian economist Vilfredo Pareto.   He described the unequal distribution of wealth in his country as coming down to 20% of the people owning 80% of the wealth. Since then the 80/20 rule has been used as an organizing principle for understanding everything from time management, to running a business, engaging content in emails,  SEO, and of course managing your subscriber list.  This number is not set in stone but it can be used as a guiding principle for segmenting your list.

The exact breakdown of your numbers is going to be specific to your list and business.  What you are going to want to do is to find out which portion of your list accounts for most of your profits.  This is usually anywhere from 10% to 20%.  Find out which part of your list is marginally profitable or breaks even.  Should be between 60% or even as high as 70%.  Next identify which portion of your list you lose profits from.  This is the bottom end of your list which can be anywhere from 10% to 20%.   Now you’re going to want to find ways of moving some of those marginally profitable subscribers up your list so that they are more profitable and therefore best customers.  That way even if you lose a best customer your bottom line is not effected.  You are also going to need to decide what to do with the 10% or 20% that you’re losing profits from.  You’re going to want to find out if there is anything you can do to at least break even with them.

There are advocates for firing a bad customer and sending them off to a competitor.   How you deal with these customers depends on your business.   However, information spreads quicker than ever before.   How you conduct your business in circumstances that are difficult is noticed.  If you take the high road even in a circumstance where you know you are going to lose no matter what you may be surprised to find out you can gain the respect of even a bad customer.  Tell them you are sorry that things did not work out and that you wish them the best in their future endeavors.  Think of it as a breakup in any relationship.  Do not give them any reason to say anything bad about you.  Never burn any bridges.  Just like in relationship you never know but this person can come back in your life in a positive way.  Word of mouth spreads quickly. If nothing else the bad customer might be impressed with the way you conducted yourself and give you good word of mouth by telling people about that.

RFM Analysis

Although we never formally referred to it as RFM (Recency, Frequency, Monetary Value) we discussed this when we talked about targeting your best customers.   Doing a RFM Analysis is a great way to find out where your subscribers fall in line with the 80/20 principle.   It will also allow you to create a marketing strategy that is based on what kind of customers your subscribers are.   You can increase profitability by treating subscribers that make infrequent big item purchases differently from subscribers that make frequent small item purchases. Recency refers to how recently a customer made a purchase from you.   Frequency is how often they made purchases from you.  Monetary Value is how much a customer spends.  RFM Analysis gives you a way of quantifying your best customers based on their past purchasing behavior.

Lets show you how RFM Analysis works by opening up our own online music store.  We’ll assume that you worked out a licensing agreement with all the major record labels and each song costs only 99 cents and albums cost $9.99.  Because buying an individual song is only 99 cents we’ll count it as nothing until you get to 10 songs which is near the equivalent of an album.  We’ll use a 3 point system for the sake of simplicity.   3 points for customers that make the most recent purchase, 2 points for those that fall in the middle, 1 for those that have not made a recent purchase, etc.

Recency Score

1. Purchased at least 10 songs or an entire album more than a year ago.
2. Have not purchased within the quarter (3 months) but have within the last year.
3. Purchased within the quarter.

Frequency Score

1. Purchased 10 songs at 99 cents or an entire album with the last year.
2. Purchased at least 100 songes or 10 albums within the last year.
3. Purchased more than 10 albums within the last year.

Monetary Value

1. Average purchase amount is at least 10 songs an album at $9.90-$9.99
2. Average purchase amount is between 20 songs or a couple of albums at $19.80 – $19.98
3. Average purchase amount is greater than $19.80-$19.98.

Anyone scoring a 3 falls within the top 20% in regard to Recency, Frequency, Monetary Value.  Those that score of 2 are within the middle 60% while anyone scoring a 1 falls at the bottom 20%.  Anyone that scored a 3 on all categories is a best customer.  Those scoring a combination of numbers either fall in the middle 60% or the bottom 20%.  Pay attention to those scoring any variation of 3s and 2s as they are your low hanging fruit.  You should implement a marketing strategy that offers these customers an incentive for moving up to best customer.  RFM analysis is useful for identifying who your best customers are and for giving you an idea of what you need to do to turn good customers into best customers and bad customers into good customers.

You want to segment your subscriber list based on shared needs so that your subscribers respond similarly to your marketing strategy.   Ineffectiveness arises in email marketing when you do not address your subscribers’ needs or your subscribers become disenchanted with your products or services. Effective email marketing involves developing a relationship with your subscribers that is built around addressing their needs.  Through list segmentation you are able to differentiate between the different needs of your subscribers so that you can then send targeted mailings that your subscribers will respond to in a similar way.  Send messages that are irrelevant to your subscribers’ needs and you risk losing them.  The better you are able to segment your lists the higher your response rate.  Treat your subscribers as if you were in a relationship with them and they will respond to you more.  List segmentation should not be rigid or fixed.  If you are responsive to your subscribers they will be responsive to you. How you segment your subscribers will change over time as you learn more about them.

Sending out email surveys are a good way of collecting additional information about your subscribers.   This information can be used in addition to your subscriber fields to put you in a better position to segment your subscribers.  When using subscription forms you should only ask for critical information.  If you make your subscription form too long you may be creating a barrier for people that would otherwise be interested in signing up to your list.

Including a short survey link in an autoresponder you send out after a subscriber joins your list is a great way of collecting non critical information that can be used to more effectively segment your list. You do not need to ask your subscribers everything you ever wanted to know about them in one survey either.   A short questionnaire with only one or two relevant questions can be very effective.  Your subscriber will be more willing to participate especially if you explain to them that you are asking these questions so that you can send them information that is more relevant to them.  You can then send them more short surveys from time to time in order to collect additional information so that you can continuously segment your subscribers.

Another option would be to send out a survey when a subscriber purchases a product from your website.  You can use this survey to gather preference or opinion data that can be used to better segment your subscriber list.   You can learn how they feel about a particular brand or technology.  These are meaningful segments that allow you to send more relevant messages.   Are your subscribers brand loyal or do they look for the best deal irrespective of brand.    Are they purchasing a camera because they are a photographer or is it only out of necessity for a special occasion?  You can set this up by redirecting your subscriber to a page containing a survey embedded in an iframe after they purchase a product.

You are asking your subscribers about their needs, preferences, and behavioral patterns as part of your market research.   Your survey should ask questions related to the marketplace and an industry rather than focusing on a business.   This information is a good predictor of your subscribers’ future behavior and will form the basis of how they are segmented for truly targeted email marketing.

In marketing segmentation the total market is divided into submarkets that share characteristics that cause each group to share distinct needs.   If done properly each segment will respond in a similar fashion to a given marketing strategy.  When applied to email marketing this concept will allow you to build relationships with your subscribers so you can then send targeted mailings that are relevant to each group of subscribers.    By treating your subscribers as distinct groups with distinct needs your email campaigns will yield higher response rates.  You will not only get more results from your existing subscribers but you will lose a lot less subscribers if your mailings are relevant.

But what data should you use to divide your subscriber list into segments?   Previously we discussed how your newsletter should have a purpose that leads your subscriber to a clear call to action.  What is that purpose and what action are you calling on from your subscribers?

If the mailing you are sending is not relevant to all of your subscribers then they should not be included in your mailing.   This is a key principle of email marketing writing and one of the things that makes email marketing more powerful than other one-to-many advertising mediums. If you run a pet store you would not want to bother dog owners with coupons for cat food unless of course they owned both a dog and a cat.  Your job here would be to identify which of your subscribers had cats or dogs, owned cats but not dogs, owned dogs but not cats, or owned both.    In this example it’s safe to assume that your subscriber is not going to buy a cat if you send them a coupon for cat food.   Why bother your dog only subscriber with a mailing if you know they are not going to buy cat food?

Three areas to consider when breaking your list down into segments are:

• Demographic data – Consumer statistics regarding socioeconomic factors such as age, income, sex, education, location, marital status, and occupation.   This could be a good starting place for observing marketing trends.   People from similar backgrounds will often act a like and you can begin to observe patterns emerging.  While this is valuable for lending insight into general behavior, it cannot be relied up on as a predictor for individual behavior.   If the pet store coupon is for a premium pet product then someone with more disposable income may have more interest in your product.  Then again a single adult may be more indulging to their pet.   You never know when it comes to people and their pets.
• Preference and Opinion Data – Information usually collected by surveys, polls, focus groups, or through conversation.  This information can sometimes be biased in some way or another. There are many people that will tell you what you want to hear or what they want to be true rather than what is actually true.
• Behavioral Data – Using past behavior to predict future behavior is usually the most reliable data to collect.  Unlike preference and opinion data you are relying on someone’s actions and not what they say.   If your subscriber has used coupons to buy cat food in the past then this is the best indicator that they will actually use your coupon to buy more cat food.

Philip Kotler, an S.G Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management at Northwestern University, suggests that to be effective and useful to your business a market segment should have the following characteristics:

• Measurable – You need to find out its size, key characteristics, purchasing power, and preferences
• Substantial – Is the segment of interest large enough to be profitably served by you.
• Accessible – There is no purpose to segmenting if you already know that there is no practical way to access a segment’s members.
• Differentiable – Segments have to respond differently to different marketing programs.    If there is no difference in whether men or women buy certain cat foods, then there is no effective segmentation.

Once you have effectively segmented your subscriber list you can then target each segment.  When each segment is differentiated on the basis of their needs it allows you to send mailings that address those needs.   When you address those needs your mailings are relevant to your subscribers and they are more likely to respond.

Your relationship with your individual subscribers will change over time as you learn more about them.  Email Marketing provides you with metrics for your subscriber such as how frequently your subscriber opens your mailings, how often they click on your links, and you can also gain insight into their purchasing habits.

In client based marketing strategies individuals are treated as separate entities.   In marketing circles a widely held maxim says that 20 percent of your clients will come up with 80 percent of your revenue.  Keep the 80/20 rule in mind when it comes to segmenting your subscriber list. When developing your marketing strategy you are going to want to identify which of your subscribers make up the top 20 percent of your list and you will then want to pay special attention to them. 20 percent of your revenue comes from this group so they will deserve special recognition.   If you do not then you risk alienating them and losing a core segment of your business.   Find ways of showing your appreciation like thanking them over email while at the same time targeting them with incentives to purchase more.

Everyone must deal with bottom feeders that cost businesses profitability.   Those at the bottom 20 percent will often cost you business.   You will need to consider strategies for bringing this segment up to a profitable level.   The middle 40 percent is often high to marginally profitable.   By understanding their needs you can map out strategies for convincing these customers to invest more heavily into your company.   Always keep an eye on the middle.   These customers can move between marginally to highly profitable depending on how well you market around their needs.   Keep the 80/20 rule in mind when segmenting your list.  A good marketer will know how to use this rule to enhance their profitability.

Many people interested in email marketing, especially those new to it, want to know how many subscribers they can send to through their list at one time.  The thinking here is that email marketing is a sheer numbers game that can be mastered by being handed a large list of prospective leads.  The more emails you can muscle out at one time the greater the chance you have of maximizing your returns. In doing so they succumb to a “cold calling” mentality.  They do this despite the fact that cold calling as a model offers the lowest possible return of all prospecting methods.  What happens is that you annoy the very people you are trying to reach to the extent that your message loses all relevancy to them.  You actually do the opposite of what you set out to accomplish.   You minimize the returns you can expect from your leads and in the process dilute the message you are trying to deliver by sending the same message to too large of a pool. You can also damage your sender reputation and so reduce your email deliverability.

This happens because expectations in such an approach are based on the faulty assumption that if you feed enough people with the same message you cost effectively reach more people that will buy into what you are selling.  The failure of this approach is due to the fact that the right questions aren’t asked in the beginning and there is no strategy mapped out for reaching the audience that is being marketed to.   It’s a brain dead approach to marketing with a clear lack of imagination.  They fail to ask themselves how the message they are attempting to deliver is being received by their subscribers.  Not everyone is going to respond to the same message.    People are too different to respond the way you want them to if you send them the same generic message.

One report showed that the number of read open and click through rates are 2.5 times higher for mailings sent to fewer than 100 subscribers than emails sent to 100,000 subscribers or more.  Effective email marketers send out to lists of subscribers that are segmented and targeted to specific demographics. The email design and email copywriting techniques are targeted specifically at the people the message is being sent to.  As a result their mailings are far more effective.

Ideally you would be able to craft a message that is specific to each and every person that you are trying to reach.   Your ideal subscriber list would consist of an army of one.  In such a scenario you could expect high read open and click through rates.   However,  such an approach is far too impractical to be seriously considered.

You can however increase the relevancy of your mailing by segmenting your list and sending them out to targeted groups of subscribers.  Segmenting lists involve separating lists into demographics that are based on similar needs or interests.  A 2006 study by Jupiter Research found that engaging audiences with more relevant communication can increase net profits by an average of 18 times.

You can begin segmenting your list by creating additional subscriber fields in your subscription forms and sending out targeted mailings to specific groups based on those fields.    List segmentation is an expansive subject which we will explore in greater depth in future articles.

The focus in email marketing has turned away from list building and toward relationship building.   Email marketers learn more information about their subscribers so they can segment their lists into groups that they can reasonably expect to respond similarly.    They then send out targeted mailings to smaller but more specific lists of subscribers.  As a result they can expect higher open and click through rates.

Recently I took some quality time to look around for sites that had information that would be useful to our affiliate members. A lot of the sites that I came across were nothing more then a consortium of paid advertisement under the guise of genuine affiliate advice.  I wasn’t willing to spend the $30 it took to find out if they were at all useful. Sites that interested me tended to be sites that allowed affiliates to freely exchange information and ideas with other affiliate members.

1. Affiliate Programs Community – This is a message board where members can discuss new affiliate trends, SEO techniques, email techniques, PPC tricks, and affiliate news related items.  You’ll have your own private section where you can freely exchange tips and discuss your affiliate program.
2. Affiliate Summit – Register for Affiliate Summit West in Las Vegas from January 21-23, 2007.    Targeted presentations include Blogs & RSS, data feeds, lead generation, incentives for Affiliates, PPC and SEO, badware, segmentation of affiliates, B2B Affiliate Marketing, and becoming a Super Affiliate.
3. Affiliate Programs Directory – In addition to serving as a directory of Affiliate programs it includes a variety of interesting affiliate resources such as the aforementioned message board as well as affiliate blogs, news, articles, and conference listings.
4. Google AdSense Program Policies – Google AdSense is a popular word that is being spun around by many sites that offer resources for Affiliates.  You are better of going directly to the source in order to learn more about whether this makes sense for your affiliate program.

While scouring the internet for Affiliate related resources that can be used to grow our loyal affiliates programs,  I came across a lot of people trying to sell books.  Having once been an avid reader myself I can appreciate the power of novel to transform the human mind and soul.  However,  I got the feeling that these authors were more concerned with lining their pockets then they were about effecting life altering change.   If there was one thing these sites had in common it was that they all seemed to promise a quick fix without offering anything truly remarkable.    Every once in a while I came across something that was actually useful and that interested me.  Unfortunately, most of the affiliate related resources that I happened upon were hopeless leads. Above I’ve posted 4 that I found useful.  I’ll continue to find these for you so that you can use this information to your advantage.

Affiliate marketing is serious business and like all business it is essential that you operate it resourcefully and efficiently. Networking and connecting with other affiliate members is still one of the best ways of mapping out your affiliate marketing  strategy.  There are no hidden costs involved with hearing what other affiliates have to say. My advice is to always be weary of someone trying to sell you something you do not need.  A common experience for anyone who’s spent any considerable amount of time surfing the internet.  Some of the best information can be found in freely distributed articles, blogs, tips, and message boards.  They tend to work best when they address the needs of people who are in situations similar to yours.