Making Industry Benchmarks Work For Your Business
by Stephen Lett
Understanding and applying industry benchmarks is the subject of our column this month. Benchmarking can be described as a set of performance standards for a specific task. Although there are many industry benchmarks which can be used as “standard” for all markets, most benchmarks need to be adjusted to meet the requirements, limitations and needs of your specific business. There are many steps that can be benchmarked and several variations based on your type of business, i.e., soft goods, hard goods, etc.
There is no one model or standard of performance that works for all. For example, the return rate for an apparel mailer might be 25% (i.e., the standard), while a food mailer might have a return rate of 3% (the standard for food mailers). It is unrealistic for the apparel mailer to set their return goal at 3% and the food mailer certainly will not want to set their return goal at 25%. These would be unrealistic. On the other hand, both companies might share the same goal for call response time. Understanding your current performance levels will help you set new goals and map out the steps toward greater efficiency.
There are many benchmarks that you can set in addition to those listed below. What we have chosen to highlight are key examples of metrics which should be measured. We will take a look at the more common standards or benchmarks for Marketing, Merchandising and Fulfillment.
Increasing Page Count
- As a general rule of thumb if you increase pages, you will recognize one-half of the percent increase in pages in actual demand lift or increase. So, if your catalog is increased from an 80 page catalog to an 88 page catalog, the increase in pages is 10%. You can use a factor of 5% as your expected demand lift when creating a pro-forma income statement in order to determine if the increased pages will pay for themselves.
- Incremental Breakeven can quickly be calculated by simply dividing your catalog cost by your return/cancellation percentage, then dividing again by your gross margin ratio. Example:
|$.65 / .95% (100% - 5%)
|$.684 / .55
This is the ultimate benchmark of whether a list and/or house file segment is profitable and this is pretty easy to pinpoint to your specific business.
Percent Repeat Buyers
- Your repeat buyers are what make you profitable. Therefore, be sure to focus your time and your marketing dollars testing how you can improve this key ratio. If you can benchmark your current rate of repeat buyers, and focus on turning one time buyers into two and more time customers, you will see a significant gain in results. What’s more, your profitability will increase as a result.
- Here is a key point to consider when testing an outside prospect list. Look at their 0 to 12 month buyer count. If the 0 to 6 month buyer count for the list you want to test is at least 50% of the 12 month count, this means the file is generally active. The list owner is bringing new buyers onto their file and growing. If this is not the case, this list owner is probably mailing mostly to their house file and not actively prospecting. If this is true, the list may not be a healthy list to test. Caution; this is not always be true especially with a seasonal mailer.
- If you are trying to grow your business, your prospect tests should represent 30% to 40% of your overall prospecting circulation. This should give you enough new lists to rollout to the following season in order to generate growth. Otherwise, stick with 20% to 30% new prospect tests which is a more conservative strategy.
- Gone are the days of tracking 94% of your orders to the specific source code. Many catalogers are finding that now only 60% of their sales are traceable to a specific source code. This is due to the increase in Web ordering. You can make improvements by requesting source code at checkout, but there is little you can do to improve this rate at the time of order. Tracking has become a real marketing issue. The best way to determine which source code generated the order is through a match-back process. This is where your service bureau matches responders against your mailed output. However, this tends to be a one shot process that is usually performed after a mailing is 100% complete and all sales are in which is considerably after any short-term reaction time. Consider one of the more dynamic products on the market now, such as ChannelView from Abacus, which uses a match-back process, but updates your results weekly (even daily if you have the budget). Once again, due to the Web, source code tracking will never be the same and catalogers need to find a way to determine how the results should be allocated across all lists mailed.
- If you have a well balanced merchandise mix, you would know this by measuring sales by merchandise category to the space that you have allocated to that category. If you have categories which are not performing well, you should consider reducing the offer and expanding in your top merchandise categories. If you are doing well in all merchandise categories, you should consider adding pages to increase sales, rather than reallocating space. Remember, adding pages to your catalog is generally a good value and investment providing you have the merchandise.
% New vs. Repeat
- This is the ultimate Catch-22. You need to keep adding “new” items for your customers to keep interest in your offer, but most new items fail. Repeat items perform much better, but your customers will soon tire of seeing the same items. So, how much “new” to bring in without hurting your results is a delicate challenge not made for the weary. In very general terms, new items should represent 20% to 30% of your offering and 80% of these new items will not do well enough to repeat.
In-Stock Position/Back Order Rate
- If you have 90% or more of your items in stock before your catalogs hit in-home, you will be in good shape when the orders start to come in. Then, your merchandising team can concentrate on chasing the winners as opposed to trying to fulfill initial orders. What’s more, your customer satisfaction rate will increase and so will your customer repeat factor.
- As mentioned earlier, this widely varies by market, with apparel at the high end. If you keep a close eye on return rate by merchandise category, specific item and vendor you will find areas of improvement. Return reason codes should be analyzed in this detail as well. Note, for every percentage point you can reduce returns by will increase your net sales by the same percentage.
- Try not to wait until the season is over to do this review. By looking at early results, you might find a problem that can be fixed rather than waiting for a post mortem.
- Your margins should be at least 54% (52% for a business-to-business cataloger) and any gain in margin is a gain to your bottom line. Work with vendors for better pricing and with your retail price to make sure you are reaching the margins you need. Be careful not to set your retail above market simply as a way to increase your gross margin percentage. Keep in mind that you put dollars in the bank, not percentages.
Call Response Time
- The standard should be 80% of all calls should be answered within 20 seconds; the remaining 20% of the in-coming calls should be answered with 1.5 minutes. What is also critical is the ASA (Average Speed of Answer). The norm is around 30 seconds. If the ASA is 30 seconds, the abandon rate will be about 5%. Although you may have “music on hold” and remind customers of your daily specials, or your commitment to customer service, no one likes being put on hold before placing their order. If you often answer calls in 5 or more rings and/or have customers “hold” more than 60 seconds, you should be using an overflow call center service until you reach these goals. Customer satisfaction is key!
- This benchmark will depend heavily on how consultative the sell has to be, how many line items you typically have per order (2.5 is normal), how many ship to’s you have per order and if you are using up-selling or cross-selling. So, if you hear that a benchmark for call length on orders should be a specific length of time, remember that your order process may not be what the study deemed “typical”.
- Reduce call length by printing the customer’s account number on each mail piece and order form. For prospects, use “finder numbers” in place of customer numbers. This will enable your system to look up name and address automatically, rather than your reps taking the time to type this information.
- This benchmark is pretty standard across markets. Try to keep your abandonment rate at around 2.5% or less. Using an overflow service will help manage peaks in call volume.
Web Order Confirmation
- Most customers now expect to receive an order acknowledgement via E-mail within a few hours. Then a follow-up E-mail with details including expected shipping dates within 24 hours. And yet another E-mail letting them know when their order shipped. If possible, the last E-mail should contain a link to track their order. (This is also an excellent reason to capiture the customer’s E-mail address when they place the order by phone.)
Speed of Shipment
- Same day or 24 hour shipment is highly desirable, but often not possible due to system and resource limitations and drop-ships. If so, you can still set goals and improve your overall processing time.
- Order accuracy is essential to keeping customers happy and your customer service calls down. Measure your rate of accuracy. Your orders should be 99%+ accurate. If not, try to determine if your issue is with the ordering process or the pick/pack/ship process. Then, see if you can narrow this further by the individuals that have the poorest accuracy.
Processing Returns and Exchanges
- If you process your returns and exchanges within 48 hours, you will be able to reduce the number of customer service calls related to returns and exchanges. It is never good to have a customer call back a second time wanting to know the status of their credit.
While knowing your current levels of performance and setting goals are important, you might want to invest some time, effort and money watching your competition. If you are currently shipping orders within 72 hours and you set your goals to ship within 48 hours, how does this measure up to your competition? Is your competition shipping same day? If so, consider setting your short term goal to shipping within 48 hours and your long term goal to shipping same day.
So, the key is to measure where you are, where you want to be and where your competition is (to make sure your goals are meaningful in the marketplace). Then, set goals and an action plan to make it happen. Remember to set achievable goals and periodically re-evaluate the benchmarks you have set for your business.
Also, when setting these goals, you need to do so without breaking the bank. Compromises must be made to balance what you want with how much it will cost to make it happen. Try using incentives where possible to improve accuracy. It can be a very economical way to make an impact.
By setting benchmarks (there are many) you will improve your customer’s order experience and therefore, loyalty. You will also find opportunities to save some money by improving efficiency. Benchmark your business … today!