How to Determine Your Catalog’s Break-even Point

For every mailing campaign, I like to prepare a pro forma contribution statement. This is not an income statement, because overhead expenses haven’t been included. This report has two purposes. The first is to determine the revenue per catalog needed to achieve breakeven. Secondly, this report is used to determine the amount of contribution dollars any given mailing campaign will generate toward profit and overhead at 100-percent complete.

Consider a fictitious pro forma contribution statement for a company we’ll call the Acme Catalog Co. This example is based on a 64-page gift catalog business with an average order size of $62. If we want to print a total of 1,357,104 catalogs (per our bottom-up circulation plan), here’s what we need to know to calculate the incremental BEP:

* direct selling expenses—cost per catalog of 58.5 cents as shown;
* returns and allowances ratio—shown at 6 percent of net sales;
* cost of goods ratio—shown as 45 percent of net sales;
* variable cost to process an order—shown at $5 per order, or 8.55 percent, of net sales.

Based on quotes we’ve received in our example, we know it’ll cost $793,814 to print the desired number of catalogs. When we divide this number by the gross-margin percentage less the variable order-

processing cost ratio, we get the net-sales figure we need to achieve breakeven. Our formula looks like this:

Direct selling expenses/(Gross margin percentage minus variable order-processing ratio) = Net sales.

Next, we determine our returns and allowance figure by multiplying net sales by our returns ratio of 6 percent in our example. This gives the gross revenue needed to achieve breakeven.

The Acme Catalog Co. must generate net sales of $1.26 per catalog printed and mailed to break even. On a gross-revenue basis, Acme needs $1.33 per book.