List exchanges: a balancing act to increase revenue, lower costs.

The economy is tight. Your marketing spending is heavily scrutinized to make sure each dollar is purposefully expended. You have to increase your overall return on investment. Your list is a valuable asset that can be managed as part of your total strategy for fundraising planning. Start with your exchange balance.

Your exchange balance with any mailer should be as close to zero as possible, monitored monthly, keeping the balance in sync with the ongoing fundraising plan.

The estimated cost of a poorly managed exchange balance equates to about 8 cents per name left on the books uncollected and is most likely not usable. Imagine the annual cost when you are mailing tens or hundreds of thousands of names.

When you're owed thousands of names, you are losing money. And, that excess comprises names which potentially could have generated list rental income. When you owe other mailers, you have put yourself in a vulnerable position. You could be cut off from taking any more of their names until that balance is greatly reduced, and then you must either pay for names or choose potentially lower performing replacements. Either way, there is a negative impact on your strategy.

Here's an example: Let's say, for the sake of argument, assume you mail roughly 400,000 prospects annually and through a careful review you uncover an amassed surplus of more than 400,000 names from multiple lists. And, these uncovered names were from organizations which could provide potentially profitable names. Careful monitoring would certainly reduce the balance owed. Additionally, you will want to test those names to determine their value to you.

Every name you use on exchange saves you 9 cents and 10 cents. Every name you can rent out instead of exchange will generate 8 cents. If the number owed was cut in half and the 200,000 names are rented out, it would generate about $16,000 in additional revenue. There would be savings in list rental costs as well, as you take the names owed to you as a mailer.

The big question is how to achieve the zero sum balance. The big answer is to optimize the exchange balance, track the relationship throughout the implementation of each fundraising plan and drive toward a net zero balance.

Ideally, a review of the balance every six months will allow you to maintain good control over the relationships. If it is not done that frequently, it is recommended that you review the balances at least once a year to ensure you maximize the value of your lists.

Mailers, list brokers and managers need a process that will take the guesswork out of tracking and managing the exchange relationships, incorporating the following factors:

1. Estimate of specific mailing requirements broken down monthly or quarterly by plan, mailing or drop.

2. Historical mailing results analyzed down to contribution to profit and overhead per new customer. Then, identify which of those top lists have been taken on exchange.

3. Decision criteria for including a list in the circulation plan starting with: What is your contribution per customer goal? More specifically, does each list need to breakeven, at minimum, in the first mailing? Are you willing to spend money to acquire a new customer? How much are you willing to spend? Your answers will guide your estimated usage of a given list.

4. Beginning exchange balance for your top exchange lists based on the reported balance from your list manager and agreed to by the list owner.

5. Tolerance for increasing order quantities on any list over time is necessary, assuming performance warrants such increases. But you need to find your comfort level.

6. Expected changes to the quantity available for any list/segment, which can occur when there are changes in the competitive environment and/or marketplace.

7. Expected number of names that each list owner will take from your list, assuming that the number remains relatively constant and there is no information to the contrary.

This process presupposes you are starting an exchange relationship or initiating the practice at a relatively even standpoint.

If your exchange relationships are currently askew, a line-by-line audit is in order. It is time to review each list and relationship with your broker and manager and determine list by list if it is a relationship that has value moving forward.

For each list with which you want to continue, it is imperative to sit down with your broker, manager, and those responsible internally to set up new rules of engagement which allow you to create a more equitable balance.

When exchange balances are estimated more accurately, the outcome is a net improvement to your bottom line. This tool will help ensure your list needs do not generate hidden costs and that your list is managed as the valuable asset it is.

Monica C. Smith is president & CEO of Marketsmith, Inc, a database, list brokerage and list management firm in Montclair, N.J. Her email is [e-mail]