5 Things You Should Know Before You Launch a Catalog Program
Starting a print catalog program is exciting. It can also be risky, which is why you need to do your homework and learn all you can about the do’s and don’ts of launching a catalog. In this article, I want to give you five things you should know before you launch a catalog program. These important factors will enable you to begin your catalog program eyes wide open.
Companies with an existing eCommerce business can benefit by adding a print catalog to their existing marketing program, i.e., multichannel marketer. Profitability can occur sooner because there is already an existing house (buyer) file to leverage. Effective prospecting models can be built that reach the targeted audience helping to grow the house file even faster. These buyers will be receptive to receiving a catalog in the mail.
Profitability will take longer for companies without an existing eCommerce business because there is no house file to leverage. A house file will have to be built from scratch. A start-up print catalog program and eCommerce presence can still be successful. It will take longer and require more funding.
Here are 5 things you should know before you launch a print catalog program.
- Adequate Funding – Be sure you have long term financing in place that will allow the business to operate until profitability can begin. If you have an existing eCommerce business, profitability can occur sooner. If you are starting a print catalog program and eCommerce site from scratch, it will take longer to achieve profitability since there is not an existing house file to leverage. Several factors affect time it takes to become profitable. Don’t count on the banks to fund your dream of starting catalog. A start-up catalog business is difficult to finance because there are no tangible assets except for inventory. In other words, there is no machinery or equipment to leverage like you would find in a manufacturing company. Personal assets owned real estate, “angel” investors, friends, relatives, etc., will be your main funding sources. Not having enough financing in place will most likely cause the business to fail before it has had time to reach the breakeven point. Time and funding are needed to build a house file of proven buyers who can be leveraged over time. Word of Advice: Add an additional 50% to the funding amount you think you need. You will most likely need more funding over time.
- Realistic Expectations - What response rates do you except? Will your first mailing be profitable? What do you expect the average order sizes will be? How much revenue will you generate per catalog mailed? What is the reorder rate? It is important to have realistic expectations and goals for all of these critical factors. Develop a circulation plan with an order and revenue forecast that makes logical sense. The house file will generate a higher response rate than prospects. Average order sizes will vary too. This is where the rubber meets the road because the forecast will be what is used to attract outside investors. Word of Advice: Don’t over promise and under deliver. Not good to sandbag either with low response rates that you exceed. Point is, being realistic will result in building creditability with your investors.
- The “Right” Merchandise with an Adequate Gross Profit Ratio – A catalog business starts with the “right” merchandise. Unique products and a “reason for being” need to stand out from the competition. Most often, the entrepreneurs who start catalog businesses have a passion for the product. They are merchandise oriented individuals who eat, sleep and breathe the product. Several years ago, I started teaching a second year MBA course on Direct Marketing at Indiana University and I always told my students that if they did not know the answer to a question, to simply put down “merchandising” and I would give them 50% credit! The product is king. The number of merchandise offers (as opposed to the number of SKUs) in a catalog is what drives the revenue. An offer is defined as a product. An SKU could be a different color, size, etc. Again, look at offers not items. I like to see a minimum of 250 (300 is even better) different offers in a start-up catalog. Product breadth, depth and assortment are critical factors contributing to the success of a catalog program. Another critical factor is the gross margin ratio. In a consumer catalog business, the gross margin percentage should be 60% or more. This is important because it drives profitability. Word of Advice: It’s all about the merchandise.
- How to Measure Success – You will want to be sure to use the correct metrics for a catalog business. This is your report card for success. The results obtained from your catalog program will tell you and your investors how the business is progressing. It is more than how much money is in the bank any given day. For example, you will want to track the RPC (Revenue Per Catalog) against an incremental breakeven point. You will also want to track the average order size, number of line items sold per order and the response rate. As you begin to acquire buyers, i.e., your house file, you will want to measure the results from buyers vs. prospects. Word of Advice: There are many marketing and financial factors you can monitor but it is important to focus on the few that will best indicate how the business is doing.
- Use an Experienced Catalog Marketing Consulting Firm – It is important that you work with an experienced catalog consulting firm like Lett Direct, Inc. This might sound self-serving, but an outside independent catalog marketing consulting firm will save you money in the long run. A consulting firm will keep you from making costly mistakes. It is just as important to know what not to do as it is knowing what you should be doing. They can also help you shorten the timeline for a catalog launch. This is not the place to cut corners to save money. Word of Advice: A consulting firm that has the right experience will reduce your direct selling expenses.
It is fun and exciting to start a catalog from scratch. It can also be expensive. Talk with the professionals who know the road to success. They will know what to do as well as what not to do. Raise more money than you feel you need and build extra time into your timeline. It always costs more and takes more time for the initial launch of a catalog. You can do it. We can help.
Stephen R. Lett is Founder & Chairman of Lett Direct, Inc., a catalog consulting firm specializing in digital marketing, circulation planning, forecasting and analysis since 1995. Mr. Lett spent the first 25 years of his career with leading catalog companies; both business-to-business and consumer. He is the author of a book, Strategic Catalog Marketing. He can be reached at 302-381-6487 or by email at email@example.com.