How to Determine Your Catalog’s Break-even Point
Our circulation plan shows that we can expect this mailing campaign to generate $2,795,635 in net sales, which amounts to $2.06 per catalog. Our direct selling expenses remain the same at $793,814, as does our cost-of-goods and returns-and-allowances ratios. This mailing campaign is forecast to produce a $504,804, or 18.06 percent, contribution to profit and overhead.
Will the Mailing Be Profitable?
Will this mailing to customers and prospects be profitable? Yes, as long as Acme’s overhead expenses don’t exceed the amount of contribution this mailing is expected to generate. When we consider the contribution expected from list-rental income and the net gain from shipping and handling revenue, The Acme Catalog Co. is expected to show a healthy bottom line.
Behind any pro forma contribution statement is a detailed and comprehensive catalog-circulation plan. We don’t start with the pro forma; rather, we end with it. Before beginning any mailing campaign, you must know your BEP. Knowing how much revenue per catalog you need to achieve breakeven is critical to your success. Not knowing this is like being lost at sea.
It’s imperative to prepare a bottom-up forecast that determines your catalog’s expected sales against your incremental breakeven. You may need to adjust your circulation numbers to maximize your contribution to profit and overhead. Recognize that the more prospecting you do, the less contribution you’ll see. It’s also not advisable to under-prospect.
Squeezing every dollar of contribution you can from your mailing will reduce the number of buyers you add to your file. Such a decision would represent short-term thinking that can hurt your business in the long run.
Remember, maintaining the proper balance between mailings to your housefile and mailings to prospects is the right strategy for good circulation planning.
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 (317) 844-8228 or by e-mail at slett@lettdirect.com.
- Companies:
- Lett Direct Inc.
Steve Lett graduated from Indiana University in 1970 and immediately began his 50-year career in Direct Marketing; mainly catalogs.
Steve spent the first 25 years of his career in executive level positions at both consumer and business-to-business companies. The next 25 years have been with Lett Direct, Inc., the company Steve founded in early 1995. Lett Direct, Inc., is a catalog and internet consulting firm specializing in circulation planning, plan execution, analysis and digital marketing (Google Premier Partner).
Steve has served on the Ethics Committee of the Direct Marketing Association (DMA) and on a number of company boards, both public and private. He served on the Board of the ACMA. He has been the subject of two Harvard Business School case studies. He is the author of a book, Strategic Catalog Marketing. Steve is a past Chairman of both the Catalog Council and Business Mail Council of the DMA. He spent a few years teaching Direct Marketing at Indiana University in Bloomington, Indiana.
You can contact Steve at stevelett@lettdirect.com.
