One of the major challenges for every catalog company — new or old — is to have a barometer by which to measure sales performance. How did the overall catalog and mailing perform? How did each spread or page in the catalog perform? How did each merchandise category perform? How did various price points perform? How did each item perform? Did the catalog meet the financial expectations established for it in the strategic financial model or the annual business plan?
Merchandise analysis — especially square-inch, or “squinch” analysis — can help measure contribution or profitability of items, pages, spreads, product categories, and price points. Squinch is one of the most productive and telling merchandise analyses that catalogers must perform, but it is a tool used primarily by and for the benefit of the merchandising team.
There is, however, another way to look at spread, page, and even item performance, by turning around the method of calculating expected revenue or sales goal per page. The calculation is not difficult to understand and gives the merchandisers and the creative team a benchmark by which they can see if the fruits of their labor have produced the revenue goals to sustain and grow the business. In other words, you can measure the performance of the products the merchandising team has sourced or of the pages the creative team has crafted.
The merchandising and creative teams can both use the sales-goal-per-catalog and per-pages metrics. In fact, sharing these metrics almost forces the two parts of the catalog organization to communicate with one another.
The “Calculating Sales Goals per Page” chart below shows three sample catalogs: 48-page version A, 96-page version B, and 128-page version C. The cost of each catalog in the mail includes fixed creative costs; variable costs of printing, binding, and mailing; and postage.
As you can see, the cost per page of each catalog decreases as the page count increases. This is the natural economy of scale taking place, indicating the greater the volume of mailing or the greater number of pages, the lower the unit cost of each catalog and the lower cost per page to produce, print, and mail.
Understanding the calculation
Look at example A. The cost per copy was $0.64; 250,000 copies were produced and mailed. Total advertising or promotion cost for this mailing was therefore $160,000. By dividing the total advertising cost by the number of total pages in the catalog (48 pages), we arrive at the cost to produce each catalog page ($3,333). Be sure to include all pages including covers and the order form. This is a straightforward calculation.
We should note that there are always nonselling pages in a catalog — the front cover, portions of the back cover, parts of the introductory spread, sections of the order form. Selling pages must carry the burden of the nonselling pages.
Next we look at our catalog’s overall financial business model or strategic financial goal, an analysis that we discussed in the February and April 1, 2003, issues. The “Catalog Financial Model” chart below left indicates a 25% advertising goal. This financial model indicates that if the catalog, at maturity, is to make 8%-10% net profit or net earnings, all the costs — cost of goods, fulfillment, and advertising — must meet their respective targets. The advertising in example A is targeted at 25%.
If advertising or promotion goal is 25%, it means that for the catalog to reach goal, its revenue must be four times greater than the advertising cost. Therefore overall revenue goal in example A is $640,000 ($160,000 × 4). To calculate revenue or sales goal per page, the per-page cost of $3,333 is multiplied by 4 to get the per-page revenue goal of $13,333. Sales goals for partial pages — half pages and quarter pages, for example — are also shown in the example.
In examples B and C, an interesting phenomenon occurs. As page count goes up — to 96 pages and 128 pages — cost per catalog in the mail naturally increases. But advertising cost per page decreases, indicating a more efficient catalog. And most important, the sales goal per page drops drastically compared with that of example A. The 128-page catalog has a sales goal per page of $7,500 — a reduction of more than 40% from that of the 48-page catalog.
Using the technique
Sales-goal-per-page metrics are useful in planning catalogs as well as in analyzing a catalog’s performance afterward. Among the uses:
In planning the pagination of a new edition of the catalog, it is important to know the sales goal per page. By reviewing the history of product categories, price points, and even specific items, the pagination team can ensure that key hot-spot spreads, such as the opening two or three spreads, are loaded with winning items or categories. Pages selling all low-priced merchandise may need to be rethought if they have no chance of meeting the per-page sales goals.
When the merchandising team or analytical group is preparing its product buy plan and merchandise forecast, knowing the sales goal per page gives it a benchmark that it must strive to achieve.
Breaking down a catalog’s performance at the end of the promotion cycle is probably one of the most important exercises a cataloger should perform. It is the “closing the loop” activity that can provide a framework and direction for future catalog editions. We recommend marking up a catalog showing actual unit and dollar sales per item and a per-page and per-spread summary. Because catalogs work in two-page spreads, they should be judged accordingly.
Using the sales data, the catalog analytical team should prepare a square-inch analysis by page and by spread showing how each item performed, down to the contribution level. The actual profit and loss results for the mailing should be shown, and results of each page and spread can be judged by how they performed against the original sales goal per page.
By reviewing the marked-up catalog and squinch, the creative team — which must be part of the post-analytical review — can draw conclusions as to such design, copy, and photo issues as:
- Is the proper amount of space being allocated to each item?
- Could the overall pagination be improved to boost sales?
- Are the spreads dense enough? Too dense?
- Has the photography helped or hurt product sales?
- Is the copy adequate to close the sale? Are sufficient benefits shown?
- Has the eye flow on the spread helped or hindered sales?
Coming to a conclusion
The overall objective of each catalog issue is to improve sales and profits from the previous book. Constant improvement will result in long-term growth and in attaining the level of profitability you desire. The sales-goal-per-catalog and per-page measurements can be a useful tool in helping you judge product categories, price points, and specific merchandise items. This analysis can also help the creative team understand “what worked” with their layouts and design.
Too often catalog marketers have poor communications between their merchandise departments and creative teams. These metrics and the process of using them will help bridge the gap between these important departments in your company.
Jack Schmid is founder of J. Schmid & Associates, a Shawnee Mission, KS-based catalog consultancy.
CATALOG FINANCIAL MODEL
|GROSS MERCHANDISE SALES||113%|
|Less cost of goods||45%-47%|
|CONTRIBUTION TO OVERHEAD AND PROFIT||16%-18%|
|Less fixed costs (overhead)||8%|
|PRETAX PROFIT OR EBIT (earnings before interests and taxes)||8%-10%|
CALCULATING SALES GOAL PER PAGE
|Example||Total Catalog Pages||Quantity Mailed||Cost per Catalog in Mail||Total Advertising Cost||Per-Page Cost||Adv. Goal Financial Model||Multiple Factor (1.0/.25)||Sales Goal per Page||Sales Goal per Half-Page||Sales Goal per Quarter-Page||Sales Goal per Eighth-Page||Sales Goal per 1/12-Page|
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