If you correctly identify your target audience, their buying cycle, and your own product, direct marketing can literally build a company out of practically nothing.
I met a man once who owned a 100-year-old “very old-time” patent-medicine production company selling a hokey-sounding analgesic balm – a glob of gelatinous goop called “Icy Hot.” He wanted to make Icy Hot the nation’s most successful mail-order patent medicine in history.
At first, I thought he was crazy. Then he explained the method behind his madness …
He had carefully studied the arthritis remedy market and concluded that he could make aggressive inroads if he could create a powerful promise wedded to a mystique-type product with a charming persona. The only problem … he didn’t want to spend a dime on advertising.
There was, however, an innovative twist. He was willing to spend 115% of the initial selling price of the product to acquire a new customer.
He taught me not to look at advertising from an abstract, non-quantifiable perspective, as almost everybody else did. Rather, he was willing to spend money only when he knew – absolutely – that he’d acquire a customer for the expenditure.
And, he later explained, for every new “start” or first-time customer he put on his mailing list, he got one out of three people to reorder over and over and over again for life – or until someone came up with a cure for arthritis.
His average customer, in fact, ordered six more times a year. Forever!
So it made enormously good sense to me when I put a pencil to his equation.
The product sold for $3. It actually cost him a bit more than 48 cents to manufacture, package, and ship out a jar. He was willing to give someone $3.45 to sell a $3 jar. Practically speaking, he really was spending only 93 cents – the 45 cents he lost on every sale, plus the 48¬-cent cost of the product.
And for that 93-cent loss, he got nearly one million people to try out his product at least once. Three hundred and fifty thousand came back at least six times a year with an average order each time of $10. So for a one-time loss of about $930,000, he added $21 million a year to his business – and over half of that was real profit.
A $930,000 loss – not all incurred at once – produced a $10.5 million annual profit.
That alone is remarkable. But let me tell you how we persuaded people to take all the marketing, advertising, and promotional risk for us. It’s quite fascinating. I approached magazines, mail-order advertising agencies, and radio and television stations – all with the somewhat novel proposition of running ads for Icy Hot whenever they had unsold time or space or the opportunity to insert something in a package they were sending out.
I’d allow them to keep all the money people sent them, and I’d send them 45 cents on top. (Remember, the product sold for $3 … so I was offering to pay them 115%.)
Until I did that, no one had ever paid or offered to pay someone more than the full selling price in exchange for assuming all the selling risk.
This offer took the advertising marketplace by storm. In just under a year, I had set up – solely on a variable/contingency basis – over 1,000 separate arrangements with magazines, newspapers, television stations, radio stations, catalog companies … you name it!
And each and every day, we’d get 5,000 to 10,000 new orders from first-time customers. And one out of every three of those would reorder over and over again … forever. Plus, the advertising we secured, at absolutely no charge, generated unbelievable demand at the retail level for our product (which we’d originally decided not to sell in stores).
We conservatively figured that in one year, our P.I. (per inquiry) advertising for Icy Hot generated over $10 million worth of advertising exposure at no charge.
In fact, retail demand for Icy Hot became so acute due to all the free advertising that we “accidentally” forced retail distribution and built up a $4 million retail business on top of our mail-order sales … without EVER sending one salesperson into the field. All we had to do was install telephone order coordinators to maintain and manage the retail business.
Eventually, the product became so successful that GD Searle, the huge pharmaceutical house, bought the company for many millions of dollars.[Ed. Note: How successful would you or your business become with Jay Abraham as your “personal coach”? Well, now you can find out! As the founder and CEO of Abraham Group, Jay Abraham has spent the last 25 years solving problems and significantly increasing the bottom lines of over 10,000 clients in more than 400 industries worldwide.]