Page Count vs. Catalog Circulation … Determining the Best Strategy for Growth
There are two primary ways to grow a catalog business; by increasing either the page count or circulation. If you can do both at the same time, it’s a win-win. These two strategies work in combination with one another. They do not compete with each other for the almighty dollar. It is not an either/or strategy.
Is it ever wise to decrease the page count of a catalog in order to increase circulation? Or, does it make sense to decrease circulation in order to add pages the catalog? The decision to increase page count or circulation are independent choices and each one stands on its own merit. Let me explain.
It’s never good to eliminate SKU’s by reducing page count as a way to save money, especially if you are a piece rate catalog (weighing 4.0 ounces or less). This will have the opposite effect on what you are hoping to accomplish. The loss of sales and the gross profit dollars on those sales will be greater than the money you save.
Adding pages is a solid, cost effective growth strategy. I have always encouraged our clients to add pages as a way to grow. This assumes, however, that there is merchandise available to support the extra pages and your product density remains the same. By all means, use square inch analysis to validate page count changes. Square inch analysis provides insight into what items you should retain, drop or add to the catalog. In a properly merchandised catalog, the 1/3, 1/3, 1/3 rule will apply. This means that 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. Aside from the decision to add pages, about 30% of the products in a typical hard goods (i.e., gifts) catalog will be replaced each print cycle. If less than 30% of the pages lose money, consideration should be given to adding more pages. Add 8 pages, do your square inch analysis and determine if 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 think about 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 underperforming items as a percentage of the total number of unique products in the catalog.
Like page count, increasing (or decreasing) catalog circulation is an independent standalone decision. Don’t decrease circulation and/or eliminate a mailing to save money. If so, you will be sacrificing contribution to profit and overhead. And, like reducing page count, cutting circulation will have the opposite effect you want to achieve.
In order to calculate breakeven and contribution, we need to know the cost of the catalog (in-the-mail), the customer returns ratio, the gross margin ratio and our variable order processing costs. Once we have this information, we can determine the contribution to profit and overhead from the mailings we make. Using this approach, we can easily determine the revenue per catalog needed to break even on an incremental basis (before overhead expenses). Our breakeven formula is as follows:
Gross Sales minus Returns = Net Sales minus cost of goods sold minus direct selling expenses minus variable order processing costs = Contribution
Square inch merchandise analysis is used to determine proper page count. Incremental breakeven analysis is used to determine how many catalogs to print and circulate by drop. If you want to grow your catalog business, be sure you maximize both of these proven growth strategies. If you need help, give us a call.
Stephen R. Lett is the Founder and Chairman of Lett Direct, Inc., a catalog consulting firm specializing in circulation planning, forecasting, digital marketing 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 302-539-7257 or by e-mail at firstname.lastname@example.org.