Your 2009 Cost-Cutting Checklist
by Stephen Lett
The economy is in the tank. Costs continue to increase. Response rates are down. What can you do to cut costs? I have always felt that you can’t slash and burn your way to prosperity even in difficult, economic times. I see catalogers making cost-cutting decisions that will negatively affect their business long-term. It is not just a matter of reducing expenses but rather a combination of continued marketing and smart expense control.
One of the first things catalog executives do in order to save money is reduce circulation. A drastic cut in circulation does not necessarily mean improved profitability. Cutting circulation can accelerate a downward spiral, a trend that is difficult to reverse.
Reducing circulation will reduce the amount of business you do through the Internet (the catalog remains the largest single drive of traffic to the web).
Here is my economic checklist for reducing expenses.
- REDUCE POSTAGE COSTS BY CO-MAILING – It is critical that you push your printer to co-mail with other catalogers to reduce your postage costs every time you mail. The savings can be significant. Thanks to the efforts of catalog printers, smaller mailers can now take advantage of co-mail savings. Work with your printer and plan ahead so you too can take advantage of co-mail pool postal savings. More lead time is needed.
- STOP MAILING TO 1X ONLY INTERNET BUYERS – A large percentage of first time Internet buyers never made a second purchase. They are surfing the web for a specific item they want and repeated catalog mailings to them have little impact. Eliminate these one-time/first time buyers from your circulation plan as a way to reduce costs.
- STOP MAILING RENTAL MULIT-BUYERS GENERATED FROM THE CO-OPS – There is a 25% to 30% duplication rate from one co-op to another. These are called rental multis. Multi-buyers created from coops against coops generally do not perform well. (Rentals against rentals and rentals against coops are fine.)
- REDUCE YOUR PAPER COST – Paper prices have been coming down. Push your printer to be certain these savings are being passed on to you. Get a competitive bid from a reliable catalog paper merchant. Consider buying your own paper and managing the usage as a way to control costs. Be careful not to switch to a lower weight paper or a super cal sheet, i.e., SCA, without first testing the effect on response. The reduction in sales can more than off-set the savings.
- SAVE MONEY BY REDUCING THE NUMBER OF VERSION CHANGES – It is not necessary to re-paginate every time you mail. A simply front cover change will do. Versioning is expensive. Print to mail three times changing only the front cover. You can produce two extra covers for less than $1,000 per cover change.
- SAVE ON POSTAGE USING ADD-A-NAME –Add-a-Name is the process where you add one or two records to a carrier route in order to qualify for a discount where you were previously short of the 10 per carrier route requirement. The records added bring your postal cost down and the net gain is positive. For most mailers, a national circulation of 700,000 or more is required in order for Add-a-Name to make economic sense. At this level, generally about 5,000 to 10,000 catalogs will be added.
AFFORDABLE WAYS TO INCREASE REVENUE
INCREASE PAGE COUNT – Increase page count if you can. Don’t reduce pages as a way to save money. Adding pages and selling more products to your existing customers is often a good strategy for increasing sales especially when business is hard to come by. Pages are a good value. The cost to increase pages is approximately one-half the percent increase in the page count. Sales should increase by approximately one-half the percent increase in page count, i.e., an 8% increase in page count will equal a 4% increase in sales.
ADD A HOUSEFILE DROP - Reducing the number of drops means eliminating a mailing to the housefile which is never good. The housefile is what generates the income. It’s the lifeblood and, it is also difficult to over mail certain segments. Obviously, not all segments should be mailed your R-F-M results will let you know how deep to mail. Leveraging your own database can have positive results.
E-MAIL APPEND PROGRAM – I highly recommend appending e-mail addresses to your customer file when the e-mail address is unknown. This can be done for approximately $.20 per e-mail address delivered back to you. It is a cost effective way to increase the number of e-mail address you market to on a regular basis.
Short-term pain for long-term gain is the better strategy. This too shall pass. Don’t sacrifice your quality or image in order to save money. The consumer will take notice. As I have said many times before, don’t let your 12-month buyer count decrease. Don’t make cost cutting decisions, i.e., paper grade/weight, trim size, etc., without proper testing first. Cash is king, use it wisely.