How to Determine Appropriate Page Counts
Strategy by Stephen Lett
Good circulation planning and merchandising are the keys to success for a catalog company. Knowing how many books to circulate can be determined by calculating a catalog break-even point.
But determining the number of pages your catalogs should include can be more difficult and somewhat more arbitrary.
This month, I'll look at basic criteria that can help determine the best page counts for your catalogs. I'll also review the economics of adding pages to a book. Pages increase response, and the economics generally are favorable, provided there's enough good merchandise available to support additional square inches of selling space.
The decision to add pages always should be driven by merchandising. Adding pages means maintaining the proper page density. It doesn't mean you should devote more space to items being added.
Nor does it mean giving more space to existing products simply as a way to fill more pages. For the economics to work, proper density must be maintained as page count is increased.
It's best to work in increments of eight pages. If you add pages to your catalog, you're really talking about adding a minimum of eight pages. The multiple would increase from a base of eight to 16 pages, 32 pages and so on.
Generally, it wouldn't be cost-effective, for example, to add only four new pages although it can be done (i.e., a four-page self or separate cover could be added).
Checklist for Determining Catalog Page Counts
1. Break your product line into product categories.
2. Determine the number of products available in each category.
3. Review the number of products within preset price ranges to uncover price-point gaps.
4. Profile the 10 best products to use as a screening guide to help know what to add.
5. Profile the 10 worst products to know the types of items to avoid.
Use square-inch analysis to know which items to retain, drop or add to the catalog. In a properly merchandised catalog, about one-third of the items will be winners, another one-third will sell close to your square-inch break-even criteria, and the remainder will need to be replaced with new products. So aside from the decision to add pages, about 30 percent of the products in a typical hard goods catalog (e.g., gifts) should be replaced each print cycle.
Back to the question about knowing when to add pages and how many pages to add. A good criterion to use is as follows: If less than 30 percent of your catalog pages lose money, consider adding more pages (in eight-page increments as we mentioned). Add eight pages, then do your square-inch analysis, and determine if you should add another eight pages next time.
Keep in mind that if more than 30 percent of the pages lose money, you might want to reduce the page count by eight pages. It's a matter of proper balance. Be careful that you don't have too many under-performing items as a percentage of the total number of unique products in the catalog.
Pay particular attention to products that are being carried over to appear in the next book. Knowing when to drop a particular item is crucial. Products that are repeated in a catalog will tend to have a revenue drop-off of about 20 percent each time. If the decrease is more, replace the items.
The Economics of Adding Pages
Additional pages (that is, good quality merchandise) often will increase your response rate and the revenue per catalog mailed. Overall, the economics of adding pages and merchandise to your catalog can help grow your catalog business.
In the chart "Catalog Costs," I've started with 48 pages as a base catalog for comparison. I've gone up from there in eight-page increments.
Increasing the page count from 48 to 56 pages yields 16.7 percent more selling space and only a 5.6-percent increase in costs. Based on the catalog print specifications, in-the-mail costs increase from $413/M for the 48-page book to only $436/M for the 56-page version. The break-even point for the additional pages is extremely low.
The cost per page for the 48-page book is $8,604. The cost per page on the 56-page catalog is $7,786 or about 10 percent less. The cost per page for those additional eight pages is only $2,875 per page!
Assuming a gross margin of 55 percent and a return rate of 6 percent, the break-even point for the additional eight pages is only $5,867 per page. This compares with a per-page breakeven of $17,559 for the base 48. In this case, adding pages makes economic sense - period.
The chart "Catalog Economics" details the total cost per thousand and the cost per page for the five page-count combinations shown. The chart also shows the percent increases in selling space and costs using the 48-page catalog as a base for comparison. For example, going to a 64-page book (from 48 pages) increases the amount of selling space by 33 percent at a cost increase of only 13 percent. Again, the economics are in favor of adding pages.
In catalog merchandising, it's important to know the average price offered (APO) and average price sold (APS) of the products being offered. If, for example, the APS is $31, this would indicate that this particular catalog is selling a lot of items in the range of $10 to $30.
Too much selling space may be allocated to higher-ticket items that may not be turning as quickly. This catalog has an opportunity to add more items in the $30-to-$45 price-point range to increase the revenue per catalog mailed.
When analyzing the average units sold, we normally see 60 percent to 65 percent of the units sold falling below the average, and 35 percent to 40 percent above the average.
Use square-inch analysis shorted based on price-point ranges to know how the book is assorted. In other words, review price points versus profitability.
If your APS is $31 and your average order value (AOV) is $73.91, the average number of line items per order is 2.38, which could be high for, say, a gift-oriented catalog.
The data also suggests you might be over-assorted at the low end of the price-point scale. This type of analysis should be done to establish product search and selection criteria. The number of merchandise offers (as opposed to the number of SKUs) in a catalog is what drives the revenue. An offer is defined as a product. An SKU could be a different color, size, etc.
Again, look at offers, not items. We like to see a minimum of 250 (300 is even better) different offers in a catalog.
AOV is a function of the lowest-priced items, not the highest price. For example, eliminating items that retail for less than $20 will increase the AOV. What's more, it's difficult to make money on items that retail for less than $20 considering fulfillment costs.
That's why the distribution of offers by price point is important. Also consider that the lifetime value of a low-ticket buyer usually is very poor. They don't tend to be loyal buyers, and the repeat sale factor is low.
Do your homework and take time to do square-inch analysis for every catalog to determine the appropriate page count. Adding pages is a matter of "bottom-up" analysis.
The economics favor adding pages depending on merchandise availability and as long as you maintain the same product density on which your analysis was based.
Proper merchandising and the right page count are critical to the success of any catalog.
Stephen R. Lett is president of Lett Direct, a catalog consulting firm specializing in marketing, circulation planning, forecasting and analysis. He can be reached at (302) 541-0608 or by e-mail at firstname.lastname@example.org.