Is it Cost Effective to Prospect with Fewer Pages?
by Stephen Lett
The idea of creating a smaller prospecting catalog (same trim size but with fewer pages) full of best selling pick-up items is appealing and sounds like a logical thing to do. It saves money, or so it seems, and in theory has little if any impact on performance. However, in practice, this is generally not the case. This month, we will discuss why it is more cost efficient to prospect with more (not less) pages and the advantages of doing so from a financial perspective. In other words, we will look at why you should prospect with the same catalog you mail to your house file.
Pages increase response. Therefore, having more pages in your catalog will increase the number of orders and revenue you receive. This, of course, assumes page density remains the same. We are suggesting that adding more new items to your catalog and keeping the page density the same, i.e., a larger store, will increase revenue.
It would seem a catalog that included only the “best” sellers would perform so well that it would offset the fall off of a catalog with fewer page count? At first, this might be the case. However, prospects will tire of seeing these same best sellers time and time again. When prospecting, you are mailing many of the same outside names over and over again. In fact, if you are actively mailing prospects, there will be a percent of those people who see your catalog as often as your own customers. Therefore, the importance of introducing new items to stimulate sales holds true when mailing to prospects for the same reason you want to change the catalog when mailing to your house file.
Whether you are considering a smaller version of your catalog, including new and pick-up items, or a “best of” book, you can use the rule of thumb (in reverse) that you will recognize from our previous articles. When adding pages to your catalog, the revenue will increase by half or 50% the percent increase in pages. In other words, if you increase your page count by 10%, you will see an increase in sales of approximately 5%. Just as if you add pages you will improve performance, if you reduce pages your performance will decline.
Let’s take a look at the numbers. In our pro-forma income statement example, Exhibit A, you will see the expected prospect performance at various page counts, 48 up to 80 pages. If your main catalog were 80 pages and you were considering mailing a prospect book of 48 pages, you could save $135,000 on a circulation of 1,000,000 catalogs. Pretty nice. However, you would stand to lose over $333,000 in sales and over $37,333 in profit contribution as our example shows. When considering prospecting with a smaller catalog, it is important to do the analysis and not just look at how much money you will save on paper, printing and postage. You need to consider the whole picture.
|PRO-FORMAL INCOME STATEMENT
|Initial Prospecting Results|
|% Page Increase||17%||33%||50%||67%|
|Expected % Response Lift||8.3%||16.7%||25.0%||33.3%|
|Net Sales after Returns/Cancels (6%)||$940,000||$1,018,333||$1,096,667||$1,175,000||$1,253,333|
|Net after Cost-of-Goods||$517,000||$560,083||$603,167||$646,250||$689,333|
|Base Catalog Cost (at 48 pages/.413/Book)||$413,000||$413,000||$413,000||$413,000||$413,000|
|Incremental Cost Per Piece||$0.413||$0.023||$0.055||$0.095||$0.135|
|Incremental Catalog Cost||$0||$23,000||$55,000||$95,000||$135,000|
|12 Month Impact|
|Total Base Buyers||10,000||10,833||11,667||12,500||13,333|
|# Repeat Mailings - Year 1||6||6||6||6||6|
|Total Circulation - Year 1||60,000||65,000||70,000||75,000||80,000|
|12 Month Buyer Response Rate||5.00%||5.00%||5.00%||5.00%||5.00%|
|Net Sales after Returns/Cancels (6%)||$282,000||$305,500||$329,000||$352,500||$376,000|
|Net after Cost-of-Goods||$155,100||$168,025||$180,950||$193,875||$206,800|
|Base Catalog Cost (at 80 pages)||$32,880||$35,620||$38,360||$41,100||$43,840|
|Total Profit Contribution||$226,220||$256,488||$277,757||$291,025||$304,293|
|* Assumes that once a prospect has purchased, they would receive an 80 Page catalog.|
12-Month Impact (Bottom Portion of Chart)
The impact of lower prospect performance carries through to future mailings. Over a twelve month period with a mailing frequency of 6 times per year, the impact of mailing a 48 page vs. an 80 page catalog on the initial mailing is even more apparent. Since this example assumes that all house file buyers would receive an 80 page catalog regardless of what their initial catalog page count size was, the only increase in catalog expense is due to the difference in the number of new buyers and therefore circulation. As you will see, using this same example you could stand to lose $100,000 in sales and over $40,740 in 12 month profit contribution (in addition to the initial loss).
The largest risk in cutting the page count is the potential shrinkage of your house file due to lower performance rates, i.e., lower response. Therefore, if you reduce pages, you would have to increase the overall amount of prospecting in order to maintain the level of new buyers being brought onto your house file. To do this, you would have to mail lower performing prospect names which will bring down your overall performance rates even further.
Catalog print manufacturing, paper and postage expenses represent, on average, approximately 80% of total catalog selling expenses and approximately 20% to 25% of net sales. We have always emphasized the importance of maximizing page count. Pages DO increase the amount of revenue generated per catalog mailed. Adding pages while making certain that the paper and press manufacturing are efficient can lower your incremental breakeven point while increasing revenue. Adding pages (not reducing page count) is a very cost effective thing to do (assuming you have the merchandise). What’s more, producing two different catalogs will actual increase the unit cost of the version with more pages because you will have reduced the print quantity in favor of the small prospecting book. This will increase your overall breakeven point for the catalog you mail to your house file. This too needs to be taken into account when doing your test and cost analysis.
If you do decide to mail a smaller prospect catalog with fewer pages, be sure to create a reliable test and try to gage the long term impact of your decision. As you can see from our example, prospecting with a catalog that has fewer pages than your main book is risky. Yes, it sounds like you will save money upfront. But, long-term, it will cost more and you will have less new buyers to add to your house file. Think long and hard about prospecting with a different catalog than the one you mail to your house file and do the analysis before you decide to prospect with fewer pages.