Going From Square Inch Analysis to Setting the Number of Pages for Your Catalog
Calculating the square inch profitability of an item is straightforward. Follow these steps:
- amount of page space for the item (1/4 page; 1/8 page; etc.)
- cost of the catalog page (printing, postage, creative and list cost of the catalog divided by the number of pages)
- cost of catalog space devoted to the item
- margin percentage
- catalog cost
- "profit" or amount available for fixed costs and overhead after subtracting catalog cost and cost of goods sold.
- "profit" percentage (profit divided by sales)
So the report format that's used is as follows (columns should be in this order): page, item, sales, margin percentage, margin, page allocation, page cost, profit.
The next step is to group the items into product categories so you can see which categories rank highest and lowest in terms of sales and profitability.
How can you translate the square inch analysis into planning the number of pages for your next catalog? Catalogers group their products into categories and rank the categories from most profitable to least profitable. The first decision is whether to keep the pages that are unprofitable. The next decision is whether to increase the number of pages that are profitable. Expanding or contracting the number of pages to fit the profitable merchandise is the shorthand method to set the number of pages for a future catalog. A summary of the product pages is simple (again, the columns in your report should be in this order): product category, number of pages, category sales, category profit, planned pages for category in next catalog.
What are the issues in using square inch analysis to set the number of pages? Consider the following:
- Are all the items in the catalog profitable? Are the categories profitable?
- Does the square inch analysis tell you to cut pages, add pages or maintain the same page count?
- Are all sales being included in the square inch analysis or just sales driven by the catalog? If web sales are a substantial portion of your business, sales may be overstated when calculating catalog square inch.
- The best products (i.e., the most profitable) should get the best real estate. Are you giving your best real estate to your best-selling categories?
- Are product categories being ranked by sales or profit?
- Is there a second tier of products that can be profitable when listed on the web but don't meet the threshold to be included in the catalog? Are there some items or categories that can be included in the catalog seasonally or less often than every catalog?
Catalogs are a simple business. If all the list segments you mail and each item of merchandise is above breakeven, your business should prove profitable. Draw the line at lists and merchandise that aren't profitable. Setting the number of pages for your catalog involves allocating enough real estate to those profitable products, and the number of pages should flow from the amount of space needed to merchandise all the profitable items.