Calculating the Profitability of Incremental Catalog Pages

Apr 04, 2006 9:14 PM  By

Catalogers maximize profitability by adding merchandise until they’ve added all the merchandise that can breakeven. How do you calculate the incremental sales needed to pay for each incremental page added to your catalog? It’s a straightforward calculation.

Cost of current catalog: $175,600
Number of pages: 40 pages

Number of pages in new catalog: 48 pages
Cost of catalog with additional pages: $205,400

Number of new pages: 8 new pages
Total cost for incremental pages: $29,800
Cost per page for incremental pages: $3,725

Merchandise margin %: 50%
Merchandise margin needed to pay for new pages: $29,800
Sales needed to pay for new pages: $59,600

Sales to pay for individual page: $3,725 x .50 margin = $7,450
Sales to pay for ½ page: $3,725/2 x .50 margin = $3,725
Sales to pay for ¼ page: $3,725/4 x .50 margin = $1,862

Should you include the creative cost? If the creative cost is significant or the catalog has a small circulation so that the creative cost is a large part of the incremental cost, then creative should be included. Typically list rental and merge/purge costs don’t change when pages are increased, so they are left out of this worksheet.

The issue is whether the new merchandise you have to put on the new pages will deliver enough in sales to cover the marketing cost of the catalog plus the merchandise cost. If you can’t cover your merchandise and marketing costs, then the incremental pages will lose money and drain your cash.

When considering new pages, catalogers often begin with an analysis of whether all their current merchandise is profitable. If some of the current merchandise is not profitable, the issue may be to cut the unprofitable merchandise and cut pages. If all the merchandise is nicely profitable, then there is usually room to add more merchandise.

The metric for measuring profitability of each item is again straightforward:

Cost of catalog
Number of pages
Cost per page
Merchandise margin
Breakeven sales:
Per page
Per ½ page
Per ¼ page
Per 1/8 page
Space devoted to an item (1 page; ½ page; ¼ page; etc.)
Projected sales for the item
Projected profit (loss) for the new item

Merchants add pages when they have filled their catalog with profitable items and have more items left over that they assume will prove profitable. Knowing the incremental cost of extra pages gives a merchant the baseline to measure whether the new pages prove profitable.

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