How To Determine Proper Page Count
by Stephen Lett
Good circulation planning and merchandising are the keys to success for a mail order catalog company. Knowing how many catalogs to circulate can be determined by calculating a catalog breakeven point. But, determining the number of pages a catalog should include can be more difficult and somewhat more arbitrary. This month, we are going to take a look at some basic criteria to use to determine proper page count. We are also going to review the economics of adding pages to a catalog. Pages do increase response and the economics of doing so is generally favorable providing there is enough “good” merchandise available to support the additional square inches of selling space.
More is always better! A catalog cannot contain too many pages (depending on merchandise availability). The decision to add pages should always be a merchandising driven decision. Adding pages means maintaining the proper page density. It does not mean that we should devote more space to the items being added. Nor does it mean that we should give more space to existing products simply as a way to fill more pages. For the economics to work, proper density must be maintained as page count is increased.
It is best to work in increments of 8 pages. Therefore, if you add pages to your catalog, you are really talking about adding a minimum of 8 pages. The multiple would increase from a base of 8 pages to 16 pages, 32 pages and so on. Generally, it would not be cost effective, for example, to add only 4 new pages although it can be done. For example, a 4 page self or separate cover could be added. Again, the economics will always be in favor of adding at least 8 pages to your book.
Here is our checklist for determining catalog page count:
- Break the product line into product categories.
- Determine the number of products available in each category.
- Review the number of products within preset price ranges to uncover any price point gaps.
- Profile the 10 best products to use as a screening guide to help know what to add.
- Profile the 10 worst products to know the types of items you should avoid.
By all means, use square inch analysis in order to know what items you should retain, drop or add to the catalog. In a properly merchandised catalog, approximately 1/3 of the items will always be the winners, 1/3 of the products will sell close to your square inch breakeven criteria and 1/3 of the items will be the losers. These items will need to be replaced with new products. This means that even aside from the decision to add pages, about 30% of the products in a typical hard goods (i.e., gifts) will be replaced each print cycle.
Back to the question about knowing when to add pages and how many pages to add? A good criterion to use is as follows: If less than 30% of the pages lose money, consideration should be given to adding more pages (in 8 page increments as we mentioned previously). Add 8 pages, do your square inch analysis and determine in you should add another 8 pages next time. Also keep in mind that if more than 30% of the pages lose money, you might want to give consideration to reducing the page count by 8 pages. It is a matter of proper balance and to be careful that you do not have too many under performing items as a percentage of the total number of unique products in the catalog. Through this type of analysis, pay particular attention to products that are being carried over to appear in the next book. Knowing when to drop a particular item is critical. Products that are repeated in a catalog will tend to have a revenue drop-off of approximately 20% each time. If the decrease is more than this, consideration should be given to replacing the item.
Let’s take a look at the economics of adding pages to a catalog. Pages are a good deal! Additional pages (i.e., good quality merchandise) increase the response rate and the revenue per catalog mailed. Overall, the economics of adding pages and more merchandise to your catalog can help grow a catalog business. Refer to chart “A”. Here we have started with 48 pages as our base catalog for comparison. We have gone up from there in 8 page increments to 56, 64, 72 and 80 pages. Increasing the page count from 48 to 56 pages (+8 pages) yields a 16.7% more selling space and only a 5.6% increase in our costs. Based on our catalog print specifications (chart “A”), the in-the-mail cost increases from $413 per thousand for the 48 page book to only $436 per thousand for the 56 page catalog. The breakeven point for the additional pages is extremely low. The cost per page for the 48 page book is $8,604. The cost per page on the 56 page catalog is $7,786 or approximately 10% less. The cost per page for those additional 8 pages is only $2,875 per page!!! Assuming a gross margin of 55% and return rate of 6% the breakeven point for the additional 8 pages is only $5,867 per page. This compares with a per page breakeven of $17,559 for the base 48. Adding pages makes economic sense... period.
CATALOG COSTS *
|LETT Direct, Inc.
|(All prices are shown per M)||48||56||64||72||80|
|* Trim size: 8.25 X 10.50 and based on 1.0MM catalogs all mailed
at the 3/5 digit code rate using the following paper combinations
all on #5 coated:
|48 pages:||48 pages on 40 lb.|
|56 pages:||8 pages on 40 lb.|
|48 pages on 34 lb.|
|64 pages:||8 pages on 40 lb.|
|56 pages on 34 lb.|
|72 pages:||8 pages on 40 lb.|
|64 pages on 34 lb.|
|80 pages:||8 pages on 40 lb.|
|72 pages on 34 lb.|
Chart “B” details the total cost per thousand and the cost per page for the 5 different page count combinations shown here. This chart also shows the percent increase in selling space and the percent increase in costs using the 48 page catalog as our base for comparison. For example, going to a 64 pages catalog (from 48 pages) increases the amount of selling space by 33% at a cost increase of only 13%. Again, the economics are in favor of adding pages.
CATALOG ECONOMICS *
|LETT Direct, Inc.
|Cost Per Page||$8,604||$7,786||$7,313||$7,056||$6,850|
|Percent increase in Space||-------||16.7%||33.3%||50.0%||66.7%|
|Percent increase in Costs||-------||5.6%||13.3%||23.0%||32.7%|
|* Note: catalog specifications are the same as those shown on Exhibit A.|
|* Also, the comparisons shown above are all in relation to the 48 page catalog.|
With respect to the merchandising of a catalog, it is important to know the APO (Average Price Offered) and APS (Average Price Sold) of the products being offered. If, for example, the APS were $31.00 this would be an indication that this particular catalog is selling lots of items in the $10.00 to $30.00 range. Too much selling space may be allocated to higher ticket items that may not be turning as quickly. It would seem that this catalog has an opportunity to add more items in the $30.00 to $45.00 price point range in order to increase the revenue per catalog mailed.
When analyzing the average units sold, we normally see approximately 60% to 65% of the units sold falling below the average and 35% to 40% that are above the average. It is important to use square inch analysis sorted based on price point ranges to know how the book is assorted. In other words, a review of price points vs. profitability is recommended.
If our APS is $31.00 and our average order size is $73.91 this means the average number of line items per order is 2.38 which could be high for a gift oriented catalog. The data also suggests that we might be “over assorted” at the low end of the price point scale, i.e., items selling for less than $20. This is the type of analysis that must be done in order to establish product search and selection criteria.
The number of merchandise offers (as opposed to the number of SKU’s) in a catalog is what drives the revenue. An offer is defined as a product. A SKU could be a different color, size, etc. Again, look at offers not items. We like to see a minimum of 250 (300 is even better) different offers in a catalog.
Average order is a function of the lowest priced items; not the highest price. For example, eliminating items that retail for less than $20 will increase the average order size. What’s more, it is difficult to make money on items that retail for less than $20 considering fulfillment cost. Again, that is why the distribution of offers by price point is important. We also need to consider that the life-time-value of a low-ticket buyer is usually very poor. They do not tend to be loyal buyers and the repeat factor is low.
By all means, do your homework and take the time to do square inch analysis for every catalog in order to determine the proper page count. Adding page is a matter of “bottom-up” analysis. And remember, the economics are in favor of adding pages depending on merchandise availability as long as you maintain the same product density on which your analysis was based. Proper merchandising and the right page count are critical to the success of any catalog.