Critical Steps to Circulation Planning

by Stephen Lett

Circulation planning is critical to the success of every catalog. In fact, over 60% of the success of any mailing is dependent on the lists used and on the circulation plan in general. Not always is enough time spent on the critical steps to effective and proper circulation planning. As catalogers, we tend to spend lots of time worrying about the design and layout of the catalog. The “look” of the catalog is important. However, in the end, it is the circulation plan that will determine our ultimate success. This month, I would like to review the critical steps to circulation planning. For some, this will be a good reminder. For others, it could cause you to spend more time planning your circulation in order to improve your results.

Critical steps to circulation planning are as follows:

Make sure the final plan assumptions support the objectives of the Company and meet P&L goals. Know your incremental breakeven point and what the dollar contribution to profit & overhead needs to be to support the Company’s financial goals. Again, over mailing will negatively impact the income statement.  By all means, plan from the “bottom-up” and not from the “top-down”! Let the circulation plan determine how many catalogs to print and mail. Maximize the results you achieve by taking the proper steps developing your next circulation plan.

  1. Evaluate Your Historical Results – Start by evaluating the strengths and weaknesses of previous mailings. Compare mailings against the same drops the year prior. Be sure to understand the current trend as well knowing there are seasonality factors to consider. It is just as important to know what didn’t work well as knowing what did. We trace historical results with a Percent Complete Report, which is issued by week. We rank the results by mailing based on the revenue per catalog generated from each list and from all house file segments; best to worst. We apply an incremental breakeven point in order to determine where the cut-off should be.
  2. Understand the Company Objectives – Know what your growth expectations are. For example, do you want to grow your business aggressively, take a more conservative approach or plan for “flat” growth? Management needs to establish the objective and the circulation plan will be prepared in support of Company goals. Aggressive growth will be at the expense of short-term profits. We believe that a balanced approach is best. We also need to be certain the prospect universe is there to support the desired growth rate. For example, it might not be possible from a circulation standpoint to grow at a given rate. Growth comes at a price and there are limits for most niche-oriented catalogers.
  3. Prepare an Outside List Reco – This is where your list broker enters the picture. A good list broker is an important part of any Marketing team. The broker needs to have a good basic understanding of what lists work (and don’t work). They will then develop a comprehensive list recommendation, which will provide current universe counts and suggest new lists for testing. You will also want to contact the cooperative databases to have them put together their list of recommendations with respect to new models to be tested.
  4. Develop the Actual Circulation Plan – Now it is time to develop the plan. You will want to balance mailings to your house file with the desired level of prospecting.  Here are a few “rule of thumbs” to consider when developing your circulation plan:

    Create a contact strategy for each segment mailed. Do not plan each drop in isolation. You need to consider that each mailing has some influence on the prior and subsequent mailings. If you plan each drop without considering this, you will not maximize your results. By looking at segments over time and across all mailings, you might find that you are over or under mailing specific segments. This could be missed if you only plan mailings off of the corresponding drop from the prior year. Another example of this is mentioned in #3 above. By looking at which mailing is the strongest we can shift circulation into the best and out of the worst mailings which should maximize performance.

    ABC Company
    LETT Direct, Inc.
    3/27/04
    TABLE D
            Drop              
    Sub-Seg. Select Frequency Data Jan. Mar. May July Aug. Sep. Nov. Grand Total
    25-36 Month $100-150 1X Circulation 3,753 3,241 3,132 2,965 2,962 2,800 125 18,979
          Orders 24 20 20 19 24 23 2 133
          Demand $3,123 $1,254 $1,899 $3,164 $1,669 $2,275 $180 $13,563
          Response Rate  0.64% 0.63% 0.65% 0.65% 0.81% 0.83% 1.60% 0.70%
          Average Order  $130.12 $61.47 $93.07 $164.77 $69.21 $98.18 $90.00 $101.76
          $/Book  $0.83 $0.39 $0.61 $1.07 $0.56 $0.81 $1.44 $0.71
        2X+ Circulation 3,082 2,625 2,574 2,492 2,485 2,503 100 15,860
          Orders 42 25 30 23 16 30 1 167
          Demand $2,723 $1,434 $2,587 $1,896 $1,140 $1,950 $57 $11,787
          Response Rate  1.36% 0.96% 1.17% 0.91% 0.63% 1.22% 1.26% 1.06%
          Average Order  $64.82 $56.92 $86.24 $83.18 $72.70 $63.95 $44.92 $70.40
          $/Book  $0.88 $0.55 $1.01 $0.76 $0.46 $0.78 $0.57 $0.74
    Total Circulation     6,835 5,866 5,706 5,457 5,447 5,303 225 34,839
    Total Orders       66 46 50 42 40 54 3 301
    Total Demand     $5,845 $2,688 $4,486 $5,060 $2,809 $4,224 $237 $25,350
    Total Response Rate      0.97% 0.78% 0.88% 0.77% 0.73% 1.01% 1.45% 0.86%
    Total Average Order      $88.57 $58.96 $89.00 $120.48 $70.58 $78.73 $72.56 $84.30
    Total $/Book        $0.86 $0.46 $0.79 $0.93 $0.52 $0.80 $1.05 $0.73

    The chart above, Table “D”, shows the results for the 25-36 month $100-$150 buyers. Assuming that our breakeven is $.80 per catalog, in total we performed under our breakeven at $.73 per catalog.  However, we would be above breakeven if we were to reduce circulation to some of the under performing segments.  If you were to do this by drop without considering the number of times mailed, you might cut too much.  By looking at the progression of results and the number of drops sent, you might decide to stagger the number of drops to every-other drop or only mailing the segment to the best drops etc.   You also might find that by staggering drops to underperforming segment demand per book increases for those segments in total. With this approach, you are starting to create a contact strategy by making decisions while considering all drops and segments, not one drop at a time.

    1. Approximately 40% of your circulation should be going to your house file; 60% to prospects. (This ratio will change if you are in a growth mode.)
    2. Prospect list continuations should consist of 70% of the total circulation going to prospects and 30% new tests.  Prospect tests should contain a good sample of out-of-category lists as well.  When you find an out-of-category market to prospect to that works, you will increase the ability to grow your business.
    3. Look at “like” buyer segments to determine which drop is really strongest.  If your 0-12 month buyer file performs best in January and September for example, most likely all other segments will too.  By knowing this, you can shift your circulation to maximize your strongest mailings and consider reducing your weakest.  For example, if you only mail your 37+ month buyers 2 times a year, make sure they are mailed March and September where they are more likely to perform well.  Remember this must be analyzed with like groups (preferably 0-12 month buyers) because the depth of circulation influences results. The chart below, Table “C”, shows that the 0-12 month house file performs “best” in January, May, July, September and November. However, this is only clear because the data is laid out so that you can see “like” buyer segment performance levels. If you analyzed performance of the house file in total only, the month of June would appear to be the strongest drop. This chart allows you to see where your performance strengths are without the influence of circulation depth on overall performance.
    4. Use an overall percentage for orders/gross demand from the Internet, catalog “tails” and miscellaneous or unknowns. Your percent of Internet should be in the range of 20% to 30%, “tails” from older mailings should range from 1% to 3% and your percentage of unknowns should not exceed 20%.
    5. Include price adjustments. But do not assume 100% of the price adjustment will materialize. We generally assume that 50% of the price increase will actually result in additional revenue.
  5. Review the Plan – Be sure you are not leaving any circulation behind. Also be certain your projects are realistic and based on actual, historical results. Don’t over project! It is generally best to put the plan draft aside for a day or two. Then, review it again with an open mind and make whatever adjustments you feel are necessary. Once the plan is approved, it becomes the budget for the year. While adjustments are made to the individual circulation plans, the overall budget does not change for the full year.
ABC Company
LETT Direct, Inc.
3/27/04
TABLE C
    Drop                
Sub-Seg. Data Jan. Mar. May June July Aug. Sep. Nov. Grand Total
0-12 Month Circulation 43,990 38,112 39,439 40,871 38,627 38,883 42,231 39,226 321,379
  Orders 1,776 672 1,331 971 1,409 965 1,628 1,322 10,074
  Demand $273,470 $86,292 $206,814 $147,749 $207,240 $131,265 $251,837 $204,200 $1,508,867
  Response Rate  4.04% 1.76% 3.37% 2.38% 3.65% 2.48% 3.86% 3.37% 3.13%
  Average Order  $153.98 $128.41 $155.41 $152.19 $147.10 $136.05 $154.69 $154.42 $149.78
  $/Book  $6.22 $2.26 $5.24 $3.62 $5.37 $3.38 $5.96 $5.21 $4.69
13-24 Month Circulation 51,356 42,494 39,032 35,768 38,162 38,055 36,290 28,572 309,729
  Orders 1,015 416 766 436 445 444 654 492 4,668
  Demand $121,185 $42,235 $100,887 $49,489 $54,142 $46,706 $72,817 $73,154 $560,614
  Response Rate  1.98% 0.98% 1.96% 1.22% 1.17% 1.17% 1.80% 1.72% 1.51%
  Average Order  $119.37 $101.43 $131.77 $113.61 $121.61 $105.24 $111.40 $148.65 $120.11
  $/Book  $2.36 $0.99 $2.58 $1.38 $1.42 $1.23 $2.01 $2.56 $1.81
25-36 Month Circulation 58,678 47,417 52,318   50,923 50,884 26,834 17,827 304,881
  Orders 725 308 407   386 361 346 296 2,829
  Demand $72,995 $31,416 $39,782   $44,213 $31,596 $44,595 $43,821 $308,418
  Response Rate  1.24% 0.65% 0.78%   0.76% 0.71% 1.29% 1.66% 0.93%
  Average Order  $100.71 $101.87 $97.79   $114.42 $87.62 $128.76 $148.04 $109.01
  $/Book  $1.24 $0.66 $0.76   $0.87 $0.62 $1.66 $2.46 $1.01
37-48 Month Circulation 55,921   66,500   35,242 48,517   16,035 222,215
  Orders 538   400   187 304   230 1,658
  Demand $49,161   $35,504   $15,701 $23,569   $27,159 $151,094
  Response Rate  0.96%   0.60%   0.53% 0.63%   1.43% 0.75%
  Average Order  $91.45   $88.85   $83.88 $77.55   $118.26 $91.13
  $/Book  $0.88   $0.53   $0.45 $0.49   $1.69 $0.68
Total Circulation 209,944 128,023 197,289 76,639 162,954 176,338 105,355 101,661 1,158,204
Total Orders   4,054 1,397 2,903 1,406 2,428 2,073 2,628 2,340 19,229
Total Demand $516,811 $159,942 $382,986 $197,238 $321,297 $233,136 $369,249 $348,334 $2,528,992
Total Response Rate  1.93% 1.09% 1.47% 1.84% 1.49% 1.18% 2.49% 2.30% 1.66%
Total Average Order  $127.49 $114.51 $131.94 $140.24 $132.35 $112.45 $140.50 $148.85 $131.52
Total $/Book    $2.46 $1.25 $1.94 $2.57 $1.97 $1.32 $3.50 $3.43 $2.18