Strategy: Generate Extra Revenue While Leveraging Existing Overheard
Gross margin ratios have been increasing the past few years. Not long ago, catalog companies operated on a 50 percent gross margin ratio (100 percent markup). Today it’s around 60 percent. The pressure to offer free shipping, coupled with cost increases — i.e., paper and postage — have forced catalogers to increase gross margin to remain profitable.
Often, however, the increase in margin has been offset by increased direct selling expenses. Paper prices have increased more than 30 percent the past 18 months, and we all know about the significant postage increases in 2007. As a result, expenses that were 25 percent of net sales for consumer catalogs a few years ago are 30 percent today. Business mailers enjoy a lower selling expense-to-sales ratio, but they too have seen an increase with total operating expenses around 20 percent to 25 percent.
Leverage Your Overhead
It’s difficult to slash your way into profitability. The long-term effect of that type of quick fix can be hard on your business. But here are a few ideas to generate additional revenue that’ll leverage your existing overhead expenses without increasing costs:
1. Use a bounceback offer. You can do this immediately with very little lead time. Place a coupon for “$5 off (or $10 off) your next order” in all outgoing packages. Dollar-amount-off offers work better than percentage-off.
2. Promote to catalog requestors. Make a “strong” offer to catalog requestors that’ll increase conversion rates. Also, run reactivation models on older requestors. You should be able to mail these prospects at least three or more times.
3. Promote to prospects. Offer prospects a dollar amount off their first orders (or flat or free shipping). This doesn’t create expectations that another offer is coming. In numerous tests, I’ve determined that a strong offer to prospects increases the revenue per catalog by 20 percent or more.