Want to more accurately analyze the performance of a list? Try excluding your fixed catalog costs such as creative, photography, and copywriting, says Michael Grant, president of Scarsdale, NY-based consultancy Michael Grant Direct: “Correct circulation planning analyses focus on just the variable catalog costs.”
Generally speaking, any cost that is not dependent on the number of catalogs printed is a fixed cost. The costs associated with each of these are also called one-time costs, since they are incurred one time and will not change regardless of whether you print 1,000 copies of a catalog or 1 million.
Say that your breakeven demand per catalog with fixed and variable costs is $1.25, and the breakeven demand per catalog with just variable costs is $1.00. Any segment that has a demand per catalog between $1 and $1.25 falls into a gray zone. The use of fixed costs to make your decisions would eliminate all segments that fall into this category. However, since this segment is covering all of its variable costs and additionally covers some of the fixed costs, you would be remiss not to mail all of these segments, Grant says.
To illustrate the benefit for a given mailing, let’s say that you have 500,000 buyers that fall into this category, with an expected $1.20 demand per catalog. You would see an additional $100,000 in contribution by using the variable breakeven demand per catalog: $1.20 less $1.00 equals $0.20 additional contribution; $0.20 times 500,000 extra catalogs mailed equals $100,000 extra contribution.