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Analyzing the Value of Direct Mail-Sold Subscriptions

Direct mail is an expensive source for most magazine publishers, at least in the short term. And given the relatively weak advertising climate, many publishers are unwilling to invest in this source or have cut back to just their most profitable lists.

I think it’s important to ensure you consider all the relevant factors in analyzing where direct mail fits in your circulation source mix and, therefore, what the right level of direct mail promotion is for your magazine.

There are two main sources of discretionary subscription circulation: direct mail and agents. The other sources, like insert cards, the publisher’s Web site, white mail and gifts, are great sources but have very limited expansion opportunities if you are trying to expand your rate base.

Direct mail and agent sources, including public place, are the only ones that are scalable. And the only agent sources that can produce large volumes for many magazines are cash field, PDS (paid during service) and frequent-flier miles (CAP/Synapse). To get large volumes from these agents, however, you often need to drop down to 0 percent remit and then pay a bonus fee of $2 to $5 per subscription.

These bonus agents can produce large volumes (tens of thousands a year) and will report as individual paid on the Audit Bureau of Circulations statement.

Public place subscriptions are the ones that go into hotels, waiting rooms and airlines. Public place agents also can deliver very large volumes, and the cost is only about $1 per subscription per year (bonus). However, public place subscriptions report as sponsored on the ABC statement if they represent more than 5 percent of your total subscription volume, so many publishers try to limit the number of these subscriptions they use.

There are other agent sources such as school plan (fundraising) agents, catalog (library) agents, direct mail agents (Publishers Clearing House, for example) and online agents (like Amazon.com) that can produce better-quality subs with positive remits, but the volumes are much more limited.

According to Circtrack, a consumer magazine circulation survey, the average loss per sub for subscription direct mail in 2002 was $10.99. So in year one of the subscription, the cost of direct mail sold is much higher than even the highest bonus agent business. It is very important for the magazine’s long-term health to invest in direct mail, but in the short term, especially in an advertising recession, some publishers are unwilling or unable to make this investment.

Direct mail-sold subs generally renew much better (to the publisher) than agent-sold subs. If you do a three- or four-year lifetime value analysis, it should show direct mail profitability gaining on agent-sold profitability, and it can surpass the agent sources by year three or four because of the higher renewal rates. This is a critical first step in analyzing your direct mail source.

Direct mail also can support your other circulation sources. It can help your Web site sub sales, increase white mail volume (unsolicited over-the-transom orders) and improve newsstand sales, because it creates awareness among people even though they might not respond to the promotion itself. This subscription volume is not explicitly traceable to the direct mail. You have to intuit this volume from your production and sales numbers.

The direct-to-publisher subscriptions on your file also will produce more gift subscriptions than will agent-sold subs, and this is directly traceable. We don’t even mail gift offers to agent sources for many of our clients because the response is too low. This secondary benefit from direct mail-sold subs can be analyzed directly and figured into your assessment of the direct mail source.

Direct mail produces a more qualified reader with better demographics and more involvement with the publication than the aforementioned agent sources, which should give a lift to the effect of advertising in the magazine. A magazine with a lot of direct mail-sold and direct-to-publisher-sold circulation produces better direct response advertising results than one with mostly agent-sold subscriptions.

One exception may be public place subscriptions, especially waiting room subs (doctors offices, beauty salons, etc.). These copies can deliver very high reader-per-copy numbers and good demographics, too, at a low cost – typically about $1 per year.

Readers per copy for this type of distribution can be as much as 10 or more compared with one to two readers per copy for DTP subscriptions and newsstand-sold copies. But the drawback for many publishers is the stigma associated with breaking out sponsored subs on their pink sheet.

The cost of lists, printing and postage continues to rise, up by double digits in the past 10 years. And publishers have been unable to pass along these cost increases in their subscription rates. Subscription prices have remained relatively flat in the past 10 years. But many circulators mail less-expensive packages than they did 10 years ago (vouchers, statement of benefits, etc.) and get good response with them, so their cost per orders is actually down in some cases.

Magazines mail less volume than they did, down 19 percent since 1998, according to industry newsletter Capell’s Circulation Report. The volume that gets cut is the worst-performing lists, so if they mailed the same number of names today, their response would be down further. Also, because publishers have cut their mail volumes, fewer good DTP-sold magazine names are on the market for other publishers to rent, which can hurt overall response.

Many publishers used to get tens of thousands of subscriptions yearly from the stampsheet agents (American Family Publishers, Publishers Clearing House), and these had better economics than the large-volume agent subs available today. Since they were direct mail-sold, they were more direct mail responsive. They often renewed (direct to the publisher) at 15 percent or better, compared with low-single-digit renewal rates for many of the negative-remit agent subs.

To try to make up for some of this shortfall, and diminishing returns from direct mail, publishers have increased use of the large-volume cash field, PDS and frequent-flier/loyalty points agents. Cash field agent volume has risen 44 percent for ABC-audited magazines in the past 10 years, according to Capell’s Circulation Report.

If you look only at direct cost per order for direct mail-sold subs in a vacuum, you are not seeing the whole picture. However, the value from the secondary circulation (Web site, newsstand, white mail, gifts) influenced by your direct mail can be hard to measure, so this has to be more of a subjective judgment call, but this should not be ignored. The value to your advertising sales also needs to be considered. Again, this can be hard to quantify.

So when a publisher pulls back on direct mail promotion (as many recently have) and moves this volume to agent-sold business, it can have an insidious effect on the overall circulation and health of its business. Sometimes it takes a few years to feel the full effect. n

Publishers need to be wary of cutting back too much on this important circulation source even though the short-term benefit to the bottom line can be significant. Consider all factors when planning how direct mail fits into your circulation source mix.

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