Budget busters

This month’s question What was your biggest budget expenditure this year? This month we called on small catalogers to put their mouths where their money is. Each cataloger has a specific philosophy that explains why they put more money toward certain aspects of their business than others. Some place the greatest stock in printing, while others cite customer acquisition costs or labor among their biggest expenses. But each cataloger is confident that his or her investments are key to growing the company.

Barbara Lundberg, along with business partner Jean Pederson, owns Cardworks, a Tacoma, WA-based catalog/Internet company that sells greeting cards for professionals. Annual sales, $250,000; annual circulation, 20,000.

Since we are in the infant stage of our catalog business, which started as an Internet operation, we’re spending the biggest concentration of money on marketing to make the two channels work together effectively and to reach our customers.

After learning our customers were accustomed to paper catalogs, we designed and printed a full-color catalog highlighting our product offering. Fortunately, we were able to design the catalog ourselves. We redirected the money we saved to other areas of the business, such as marketing and distribution, which includes list rentals and bulk mailings. We design our own product line as well, so we are able to keep costs of goods and fulfillment to a minimum.

We send out 25% of our catalogs to prospects; the rest are requesters from the Website as well as existing customers. We feel it’s important to invest in catalog distribution so that we can reach the customer directly rather than simply relying on them visiting our site.

Offline, we place ads in industry publications that target our primary customers: people working in sales and human resources workers. Online, we use affiliate partnerships, which refer customers to our site and take a percentage of the resulting sale. Though these are relatively large expenses, we find that the investment in marketing is well worth it to build a customer base and expose them to all our channels.

Jeff Borysiewicz is the founder/ president of the Orlando, FL-based Corona Cigar Co. catalog of cigars and related accessories. Annual sales, less than $4 million; annual circulation, 750,000.

Printing is always our biggest expense. I write the copy for the catalog, and we outsource the design and layout, the photography, and the prepress. Still, the printing process is our big expenditure. I simply don’t find any way around spending this money unless I really cut corners. We have a Website and a retail store, but the catalog is our preferred channel for reaching customers and still generates the bulk of sales, so I don’t see the value in downgrading it. We want our book to reflect the high quality of our products.

We have tried a few tactics to save money. For instance, we have a four-color bleed, which enables us to use #5 groundwood paper since we have no large white spaces. We tried computer-to-plate printing but did not see any overall savings, so we returned to a film-to-plate process. It may take approximately three days longer to produce our book, but it gives the catalog better color quality. I estimate that I could save about 5% if I went with a smaller printer, but that savings is not significant enough to sway me from the quality, resources, and good service that I have received from our current printer, Quebecor.

Eileen Spitalny is cofounder/ owner of Fairytale Brownies, the Chandler, AZ-based catalog of dessert gifts. Annual sales, less than $5 million; annual circulation, 500,000.

Labor is definitely our biggest expense. About 30% of our budget is dedicated to our employees’ salaries and to training. This may be partially due to the fact that we make our own perishable product – all of the brownies and desserts are handmade by our staff, and our gift boxes are assembled inhouse as well. We certainly think our success rests on maintaining product quality, and we think that the means to achieving this is keeping a stable and well-trained staff.

The average training period is four to six weeks for everyone from bakers to package assemblers. We cross-train all employees to be aware of quality-control issues so that they are empowered to help us keep our outgoing orders up to our standards. If we scaled back, we feel that we would not get the same level of dedicated workers that we have now, and our product line would suffer.

The current economy has caused a labor shortage, and this has further reinforced our decision to allocate a substantial portion of our budget to our workforce. Plus, my partner and I started this company and worked for the first two years by ourselves, so we know that it takes a lot of hard work and teamwork to make the business successful. To us, this diligence is worth higher compensation.

Diane O’Connor owns Macedonia, OH-based Creative Irish Gifts, a cataloger/retailer of Irish-themed products. Annual catalog sales, $10 million; annual circulation, 4.5 million.

Postage is usually is our biggest single expenditure. Still, the benefits of mass-mail prospecting and our conversion rate of prospects to buyers helps us rationalize spending so much on postage. Our house file doubled last year alone from prospecting. Our philosophy is that we are bringing our store to customers’ homes, and naturally we want to reach as many as possible.

Also, postage occupies a large slice of our budget because as the business and sales grow, we have added more drops. Last year we increased from seven to eight drops a year, and next year we anticipate mailing the catalog 10 times. Plus, we are always expanding our product line and increasing page counts. We plan to increase our 56-page book to 64 pages.

Of course, the growth of our customer file and the catalog means that our postage costs will continue to rise, and we are a bit nervous about the possibility of having to scale back if the pending postage hike goes through in January 2001. Still, we will continue to prospect and hope that we can convert some existing customers to the Web – and bring in new customers that way as well. Our Web business grew more than 400% since last year, so we are encouraged that while postage will remain a large budget fixture, the Web might help us offset some expenses and allow us to continue aggressive prospecting.

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