Contributions to Profit The 40-40-20 Rule
I once had a client who hired a new team of managers from the retail side of its business segment. They immediately decided the catalog looked shabby and needed to be significantly upgraded in look and feel. They nearly doubled their catalog costs to upgrade the brand image. That meant they needed twice as much revenue to break even. The catalog's loyal customers reacted immediately — many did not order. Prospects also stopped ordering. Why?
My guess is that catalog shoppers are smart — they want economy. So when they received the gussied-up catalogs, which also carried slightly higher pricing, they decided that too much of their money was going into the company's pockets. In essence, they voted down the new branding efforts with their pocketbooks.
The moral of the story: Understand what drives results for your brand. In this case, the old "shabby" catalog was seen as a cost-effective way for customers and prospects to make their purchases. No creative window dressing was going to change that.
In another instance, a client of mine did an A/B split test to see if better paper affected results in a positive way. When we did a postmortem analysis, what we saw was that while response and sales per catalog mailed were slightly up in a few housefile and prospecting segments, the additional cost of the paper wasn't covered by the increases in sales.
Eighty percent of your efforts need to be focused on your merchandise offerings, list analysis and selection. While design meetings and photo shoots may be the "sexy" end of the business, the money quietly is made behind the scenes by crunching numbers. This means you should:
- Analyze customer lifetime value and return on investment per customer acquired, both in total and broken out by customer acquisition media (print vs. online, etc.).