Measuring True Incremental Sales

Apr 17, 2006 9:00 PM  By

Increasing the frequency of buyer file mailings is a straightforward circulation technique to build sales and profitability. Catalogers often mail buyer file segments all the way down to breakeven, assuming that mailing all segments above breakeven will maximize profitability.

The flaw in that reasoning is that some buyers rebuy on their own initiative without the additional stimulus, and cost, of follow-up catalog mailings. If you are mailing buyer segments down to breakeven sales per book, you are mailing too deeply and cutting into your profits.

Measuring the incremental sales that result from a buyer remail is the key metric in determining how deep to mail into your buyer file. Setting up tests to measure the incremental sales from house file mailings gives you the necessary metrics to draw the line at your true breakeven sales for these customers.

For example, if your breakeven sales per catalog is $1 (the amount needed to pay for the catalog cost and the merchandise cost), testing may show that a buyer segment yielding $1.30 per catalog would have received $0.30 in sales from those buyers even if you hadn’t mailed them a catalog. So the incremental sales from the catalog are actually $1, and the breakeven line for profitability is at $1.30 per catalog rather than at $1.

The test design for measuring incremental sales is to have hold-out panels of buyers you are not going to mail. Take these panels from the marginal segments of your house file–those segments that are just above breakeven. Mail half of the panel; do not mail the other half; then measure the sales of those segments.

Obviously you can’t just track sales by key code because the segments not mailed won’t have key codes. Take all sales during a date range of two to three months after the catalog mailing, and match those sales back to the mail and no-mail segments of your hold-out panels. Run the tests over a series of catalogs, and measure the decay in response as buyer file segments go longer and longer without having received your catalog.

Actions you’ll take once you determine the incremental sales from mailing an additional catalog to house buyers include:

  • Breaking your house file into more segments. In addition to RFM (recency, frequency, and monetary value) you’ll want to measure buyers by channel, low average orders, holiday gift buyers, etc.
  • Segmenting Web buyers because Web buyers may be much less responsive to catalog mailings that your traditional mail order/contact center buyers.
  • Segmenting Web buyers into catalog-driven Web buyers who received a catalog and then ordered online vs. pure Web buyers who ordered online without having received a catalog.
  • Mailing more frequently to your best buyers and less frequently to your older buyers and catalog requesters.
  • Lengthening the time between mailings of marginal house file segments so that you don’t cut off the sales “tail” of an older buyer file segment. Segments that would be unprofitable if mailed three times a quarter may merit being mailed once a quarter.

If your financial goal is to maximize profitability, you’ll never want to mail below your true breakeven. Knowing your incremental sales per catalog will keep you from overmailing your house buyer file.

Jim Coogan is president of Santa Fe, NM-based consultancy Catalog Marketing Economics.