Targeted Advertising: How to Reach Potential Clients Through Direct Mail

By: Charles E. McCabe, President & CEO
Peoples Income Tax, Inc.

Mass media advertising is effective in creating awareness, name recognition, and differentiating your firm from the competition. However, it is difficult to effectively sell with mass marketing because tax preparation service is not a commodity. The pool of taxpayers is made up of people having widely varying tax situations and needs. For example, offering a Refund Anticipation Loan to someone who has no urgent need for cash or who owes the IRS, obviously has no appeal. Likewise, the lowest price is not as important to someone with a complex tax situation as is the knowledge of the tax preparer. Therefore, it is important to view prospective clients not just as one group of taxpayers, but to group them into client segments having similar characteristics. Then you can determine the needs and wants of each group and develop strategies to meet those needs and market to that client segment effectively. We have identified four client segments:

1. Low-Income. These taxpayers live “hand to mouth” and struggle just to maintain the bare necessities. Many are frequently unemployed and have been on public assistance. Most qualify for Earned Income Tax Credit and are prospective RAL clients.

The primary concerns of these clients are speed of refund, price and convenience, in that order. They are not especially concerned about future benefits such as year-round service. They tend not to have a great deal of loyalty.

2. Middle-Income. This group includes blue-collar and non-professional white-collar workers. They are by far the largest client segment and constitute the mainstay of traditional mass-market tax firms. Although they are not poor, they have very little disposable income. They tend to be fully employed.

These taxpayers are concerned about price, speed of refund, and convenience, in that order. They are usually not desperate for a fast refund, and they are also concerned about knowledge and professionalism of the tax preparer, year-round service, and the tax firm’s stability and willingness to stand behind its work. They tend to be loyal if they receive true value and are treated with courtesy and respect.

3. Upwardly-Mobile. These taxpayers are professional white-collar workers, such as line-managers, teachers, engineers, nurses, medical technicians, computer programmers, etc. They generally have college degrees. They tend to remain fully employed, although downsizing has impacted many upwardly-mobile workers.

Upwardly-mobile taxpayers are somewhat less concerned about speed of refund and price. Knowledge and professionalism of the tax preparer, convenience, year-round service, and the tax firm’s stability and willingness to stand behind its work are all very important. They may need tax planning advice and assistance with tax questions during the off-season. They will remain loyal if they receive personal service, preferably from the same tax professional year after year.

4. Executive-Level. This is the high-income segment, the tip of the pyramid. Although small in numbers, they are the most lucrative clients and the ones most in need of professional tax assistance. They include middle-managers, attorneys, college professors, and small business owners. Executive-level clients often have complex returns, but not always. They often make estimated payments and owe money to the IRS when they file. They are usually very busy. They are the least price-sensitive of all clients, and often the most demanding.

Executive-level clients prefer an appointment (with no waiting) and may not want to wait while the return is being prepared. They expect a private office interview with an expert, sophisticated tax professional who will be available year-round to help them with tax planning, estimates, and tax questions. Executive-level clients are willing to pay extra for special service.

After defining your client segments, you can determine strategies and tactics to market effectively to each group. You should select advertising media that can reach your target market most efficiently and cost-effectively and create ads that will appeal to the needs and wants of your target prospects. One of the most precise means of reaching a target market is through direct mail.

Direct Mail

You can obtain mailing lists from list brokers for almost any profile of prospects in any geographic area and in any format you desire. You must remember that there is tremendous competition for the attention of the direct mail recipient. Unless your mailing piece grabs the reader’s attention within two or three seconds, it will go into the wastebasket. A polished direct-mail piece can also be very expensive to create, print, and mail, since a response rate of one percent may be the best we can expect. Fortunately, your mailing piece doesn’t have to be a highly sophisticated four-color work of art to be effective.

Letters: If you are targeting upwardly-mobile or executive-level prospects, a letter in a #10 office envelope might be the most effective format. The more personal you can make the letter the better. Some mailing lists can be obtained in electronic form that can be imported into your word processing package enabling you to produce personalized letters using your letterhead on your laser printer. You could make the envelopes look more personal by laser printing them, or by using clear laser printed labels that give a typed appearance. You might also use postage stamps instead of a meter (available for first- class or bulk rate). Finally, you could sign each letter individually in blue ink so it is obvious that your signature is not printed or photocopied.

Customized form letters can be used to appeal to taxpayers with special needs. Following are a few examples:

• Prospective client introduction letter. Use this letter to introduce yourself to potential tax prep clients.

• New business letter. When new businesses move into your neighborhood [or start-up], let them know your services are available.

• Referral letter. Referrals are a great source of new clients. Thank your clients for every referral they send to you.

• New home letter. New homeowners are often listed in your local paper. Take the initiative to let them know that you can help with the special tax needs related to a new home purchase.

• Retirement letter. Remind recently-retired clients [and prospective clients] to come in and discuss their changing needs.

• New baby letter. Look in your local baby or birth announcements. Parents often don’t know how their tax situations will change with the birth of a child.

• Recently divorced or separated individual. Send this letter along with the brochure on the same topic and offer your help with changing tax needs.

You could add to the above list a variety of additional categories of taxpayers with special needs, such as newlyweds, ministers, military personnel, police officers, outside sales reps, doctors, etc. Almost any list can be purchased for a moderate cost from list brokers or trade and professional associations.

Postcards: Postcards can be used to target low-income and middle-income clients at a lower cost and often with better results than a more elaborate mailing. Postcards are mailed first-class at nearly the same low bulk mail letter rate. First-class mail is usually delivered faster and postcards can be mailed as they are addressed instead of all at one time.
Graduate Gift Certificates: For many years, national tax firms have mailed gift certificates for free tax preparation services to recent high school graduates. This offer is designed to introduce young taxpayers to the tax firm with the hope of establishing a life-long relationship. Mailing graduate gift certificates is an effective long-term tactic to help build a clientele. Variations of this idea include mailing to college seniors, offering discounts instead of free tax returns, and offering free electronic filing for self-prepared returns. If you mail to college students, remember that nearly half of today’s college enrollment are adults age 25 and over. Therefore, your mailing should be targeted to full-time traditional students, and a limit on the dollar amount or type schedules included should be specified on the gift certificate.

Direct mail is only one of many ways to reach a targeted audience. In future issues of the Tax Practitioners Journal, we’ll tell you how to effectively advertise your products and services through cable TV, radio, newspapers, magazines, and newsletters.

This article is an excerpt from the Peoples’ Tax Office Marketing Manual
© 2000, Peoples Income Tax, Inc.

About the Author:

Charles E. McCabe

Chuck, a 40-year veteran tax industry executive, has managed hundreds of tax preparation offices in the U.S. and Brazil. He earned his B.S. degree in management (summa cum laude) from Adelphi University and Executive M.B.A. degree from Pace University, where he also completed doctoral studies in business. He is founder and President of Peoples Income Tax, Inc., which operates 18 tax preparation offices in central-Virginia and licenses income tax school and tax practice management systems to independent tax firms nationwide.

Chuck is involved in numerous community and small business advocacy activities. He is co-author of two books on career education for adults and numerous articles on adult education, income tax and management. He has taught small business management as an adjunct faculty member of Virginia Commonwealth University.

Note to users:

All information provided is general in nature and intended only to create awareness, not to address the specific circumstances or concerns of any individual or enity. Although we try to provide correct and timely information, we cannot guarantee the accuracy of any information or that such information will continue to be accurate in the future due to the changing nature of the tax laws. Before acting on any of the information provided here, you should consult with a professional advisor who knows all of the unique facts and circumstances pertinent to your particular situation.

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