George Hague
How to Develop a 3 Year Marketing Plan

It’s only a matter of time before your chief financial officer figures out that you have more influence over his financial plan than he does. When that eureka arrives your CFO will ask you for a plan that projects sales for the next three years or so.

In smart catalog companies, financial planning is a partnership between the marketing and financial staffs. Mailing is your key revenue generating activity. Mail quantity, frequency, response rate and average order value are the essential numbers for projecting sales. Mail quantity will determine marketing expense. Sales will project the company’s cost of goods. Your number of orders will project your variable fulfillment costs. Tally the balance sheet and mail quantity drives more than 70% of expenses for many B-to-B catalogers.

If you already develop an annual contact strategy that outlines mail quantities by both house and prospect quantities, you’re ahead of the game. Take your strategy and run top line projections for your house file and prospecting quantities. When you use accurate historic metrics for response and AOV, you have a solid projection of your orders and sales for your first year.

Project house file growth

Your number of orders from this year’s prospecting is a good start for projecting your number of new customers for next year. Add your historic numbers from reactivation, search engine marketing, pay-per-click advertising, other sources and finally attrition. But what happens to the house file for your lower RFM segments?

Each of these segments has its growth rate – positive or negative. By comparing the counts of each segment over the previous year or two, you can estimate this growth percentage and project a reasonable count for each segment. To simplify this process, many marketers use blended counts, such as the 0-12 month file, 13-24 month and so on.

In a spreadsheet add in each segment’s response rate, average order value and the number of times you expect to mail it. If seasonality plays a role in your response rates, you may have to run two, three or more sets of parallel numbers. With these figures you have a first pass at your sales and orders from your house file. Based on the formulae and projections that you just created, repeat the process to develop the next two years. This spreadsheet is your template for your three-year plan.

If you calculate your projections to flow from cell to cell in your spreadsheet, you will quickly see that your house file grows with more prospecting and declines with less. Every house file is essentially a leaky bucket. Regardless of your best efforts, some customers will migrate down the recency scale into reactivation and finally into segments that aren’t profitable to mail. If you never prospect, your file would likely shrink to a fraction of its current size. To grow a company, you must fill the top of the bucket with names faster than they leak out the bottom. This is why prospecting is essential.

Your prospect universe

Based on your successful prospecting, you can calculate your known prospect universe count. This number indicates the total number of proven prospects available to you. Multiply each list count by the number of times you expect to mail it each year to calculate your number of prospect pieces from continuations.

Keep in mind that it is difficult to know what kind of growth or decline your prospecting continuation counts will see in the future. However, the history of these files gives you an indication. If you see steadily growing counts, you can project growth based on that percentage. If you see a decline, you will want to take that trend into account. Once you enter your continuation count into your spreadsheet, you have a reasonable financial projection for what is possible based on known factors.

Next, compare your projections to your company goal. If your numbers far exceed your target, it is possible that you have an opportunity to grow faster than your current trajectory. Of course, this growth will likely require an investment greater than you are currently making. Bracketing your plan in a conservative, moderate and aggressive version is a helpful way to see the potential risks and rewards for different tactics.

If your projections aren’t meeting your target, you will need to rethink one or more aspects of your company’s strategy. This process is called “gap analysis.” You have a gap between your projections and your target, and you analyze how to close it. A common mistake for b-to-b mailers is not to mail key house file segments frequently enough. You may need to test your current contact strategy to see if you are maximizing those contacts. It’s also possible to be too conservative on prospecting and not test enough new lists.

On the other hand, the company goal may be unrealistic based on the size of your marketing niche. If this is the case, the company needs to think strategically about opening new markets for existing products, launching a new catalog, or possibly even making a corporate acquisition.

Above all, resist the urge to increase average order values or response rates based on the need to get your financial planning finished. Yes, you can improve response with better lists, offers, creative and product, but increasing your projections without proof from in-the-mail tests can end in disappointment. Use your known metrics and stick by them.

Schedule success

Successful catalogers have production, marketing and financial planning schedules. Most mailers need to complete their financial plan about three months before their fiscal year. The logistics of ordering paper for your first mailing often determines your due date for your financial plan. Consult with your printer for the last date of change (LDC) for your first print quantity.

Use the same scheduling process for your financial planning as for your production and marketing. Work backwards from your due date, giving enough time for additional list research and running scenarios. Usually two or three drafts are sufficient to complete your plan. By beginning this process, you take the initiative to plan both your and your company’s success.