The 10% Club

One of the questions often asked — especially by list owners — is about the size of rental commissions. Why do brokers get 20% and managers 10%?

The arrangement certainly doesn’t seem based on the fee structures of other industries. Real estate brokers get 6%, advertising agencies 15% and independent space between 15% and 30%, depending on how much work they do.

There is a logic to list commissions. But to grasp it, you have to turn the clock back to the time when there were no managers or brokers and the list business was run by compilers.

The first compilers appeared during the 19th century. One was W.S. Ponton, which started in 1885 and is still with us, according to Clem Schwartz, former owner and president of The Coolidge Co.

These companies compiled lists from directories, phone books and associations. But the science of list decoying had not yet been developed, and they were afraid that their lists would be stolen, so many insisted that all mailings go out from their premises.

That’s why compilers got into the lettershop business (that and the fact they could generate additional income for themselves).

You didn’t need any special training or skills to be a compiler. But the business did attract some very smart people.

One was Arthur Martin Karl. Karl was a salesman for J.A. Want, an educational list compiler and lettershop. In 1934, he decided to go off on his own when his clients asked for lists that J.A. Want didn’t have. He founded Names Unlimited, according to his widow, Janet Karl, and their son Bob.

Then there was Lewis Kleid, founder of The Kleid Co.

Kleid primarily was involved with lettershops and Karl with list compiling. Each saw how well the other was doing in his own area and decided to do both.

List brokerage naturally followed. It was hard to find files housed in dozens of separate compiling companies, so mailers asked their own compilers to find — and arrange to get — lists (in other words, to broker them).

The result is that firms like Names Unlimited and Kleid not only compiled their own lists (for which they earned 100% of the revenue), they also brokered other lists, earning a 20% commission. And as the number of files on the market multiplied, so did the brokers, many of which got into the business without owning any lists of their own.

How did they decide on a 20% commission? It was simple, according to old-timers: The commission earned for recommending someone else’s list had to be high enough to deter the broker from compiling the list itself and low enough that the broker would earn the bulk of the money when its own list was being rented.

But the field was changing. Direct marketers, attracted by the prospect of list rental income, made their customer lists available to non-competitive mailers, although reluctantly at first.

Unlike compiled files, customers lists had been sacrosanct. No mailer wanted to part with the one resource it could count on to generate ongoing sales and profits.

But these same mailers also were demanding more and better names. Compiled lists could carry them only so far — they needed behavioral files like the ones they owned themselves.

So they started exchanging lists with each other. Then they asked brokers to set up exchanges with mailers they didn’t know. If the list didn’t work for one of the parties, the broker would try to convert the exchange into a rental.

The brokers also tried to persuade the list owners to give them “broker exclusives” on their lists. It was a tedious job convincing mailers that they could earn tens or even hundreds of thousands of dollars with no extra investment by putting their files on the market. But it got easier as time went on.

What happened if a broker had to go to another broker to rent a file? They split the fee, getting 10% apiece.

But there were two major drawbacks to this system. One was that brokers did not have the wherewithal to provide full marketing services for their exclusives.

The other was that all the exclusives were monopolized by a handful of firms — outfits like Kleid, Names Unlimited, Coolidge, Names in the News, Dependable Mailing Lists (Jack Oldstein), Accredited Mailing Lists, Walter Karl Co., Alan Drey Co., Burnett, Appleby and Woodruff (which later became the Ed Burnett Co.), the Dunhill companies and a few others.

Once again, the market met the demand.

The first person to “manage” a list was Ed Burnett. Clients asked Burnett, a reseller of business-to-business files, to put their own lists on the market so they could cash in on rental activity, and Burnett accommodated them by setting up broker exclusives.

In a few cases, though, he experimented with the idea of charging his clients an extra 10% for the work that had to be done.

Did that make him the first list manager? Yes and no. Burnett peddled most of these lists to his own clients or to other B-to-B compilers and resellers. He did not spend money to advertise and promote them, so he was not a “manager” in today’s sense of the term.

But others soon did. One was a literary agent named Jim Knox, who in 1966 went to work for the Alexander Sales mail order company. One of Knox’s main goals on the new job was to persuade brokers to push the Alexander Sales list.

Talk about good timing. In 1967 the U.S. Postal System mandated that every mailer using third class postage was required to have his list ZIP coded, offering lower rates as an enticement. This led to the creation of computer service bureaus, which took on the job of computerizing and ZIP coding the thousands of lists on the market.

Up to this point, most lists were maintained on addressograph plates — small metal plates on which names and addresses were embossed and kept in trays in state/alphabetical order. Walter Karl, the brother of Arthur Martin Karl and a prominent list broker in his own right, set up a service bureau called Computers and Labels. One of his clients was Alexander Sales.

Karl became friends with Jim Knox, who was unhappy with the income his own firm’s list was producing. They decided to start Computer Directions Corp., a company that would market mailing lists the way independent space reps market advertising space in newspapers and magazines. It would differ from the Ed Burnett approach in than it would be a standalone company, not in any way associated with a list broker, compiler or reseller.

Joining them in this endeavor was Robin Black, a list brokerage account executive at Names Unlimited. He left his position there to head up CDC. The partners included Karl, Al Raskin, Knox and Manny Piller, who had hired Knox at Alexander Sales after meeting him at a cocktail party at the Gramercy Park Hotel. The first clients were Greenland Studios, Tiburon Vintners, Ladies Home Journal, Columbia House, U.S. Sales, and many others blue-chip accounts of the day.

Walter Karl’s involvement with this new company was a secret (as was Raskin’s), and with good reason. CDC had to deal to gain the trust of all the brokers in the marketplace. Any company owned by a competitive brokerage firm would have doomed it from the start.

The biggest challenge was deciding how much to charge for these new services (which involved spending more money on sales and promotion than Ed Burnett had ever anticipated).

Could they charge an additional 20% on top of the 20% the brokers were already getting? Hardly. No list owner wanted to give away 40% of his rental dollars. Could they charge 15%, the fee advertising agencies were getting? Same answer — 35% was still too much. That left either 5% or 10%. And 5% was out of the question considering all the expenses the list manager would have to incur.

That left 10%, the Ed Burnett formula. Most brokers resisted getting involved in this business. They tried to convince their “broker exclusive” clients to stay in the fold. Some brokers tried it, demanding a higher commission arrangement. One of these was Steve Millard, founder of Millard Group Inc. He told an audience at a Hundred Million Club luncheon in the early 1970s that it was a money-losing proposition to charge 10% for managing lists. He asserted that he was charging his clients 15% and some as much as 20% for the service.

But Millard, going with the flow, eventually reduced his own fee to what had now become the standard 10%. And he did indeed find a way to make it work.

And how did they get list owners to go along? Through assurances, guarantees and give-backs if certain goals weren’t met. On paper, all the list manager had to do to equalize the 10% fee was increase the owner’s revenue by about 17%. But good managers were soon producing 50%, 100% and even 200%.

Meanwhile, CDC kept growing. Charles Michel, whose background was in computer sciences, joined the firm as a partner and started its computer service bureau, and began offering list maintenance and merge/purge services. Doug Flynn from Names Unlimited came on board as a “super salesman.”

Dave Florence was another visionary who deserves credit. In 1967, he started List Management Inc. while still working as a salesman at National Business Lists. Two years later, Florence left NBL to start his own list brokerage called Direct Media, later acquiring LMI. LMI remained a separate company until the late 1970s, when Florence folded it into Direct Media and formed a division called Direct Media List Management. It flourishes to this day.

Oddly, there were only three significant, truly independent list managers in all this time: CDC, LMI and Woodruff-Stevens & Associates Inc. The latter firm started in business in 1972. CDC and Woodruff-Stevens, though successful in their own right, decided to merge in 1976. It then bought Names Unlimited from Colonial Penn Life Insurance Co. and renamed the business Computer Directions Group.

Yes, the names and faces changed. But the management commission remained steady — at 10%.


Ralph Stevens is a senior vice president with MKTG Services, an affiliate of CBC Cos. Inc.Previously, he was president/CEO of Stevens-Knox & Associates Inc., and president/CEO of Woodruff-Stevens & Associates Inc.