Many metrics are used to run a profitable catalog business. For example, an apparel company may set a goal for its overall return rate of 22 percent, while a gift mailer may strive for less than 6 percent.
But one thing is universal among catalogers: The ideal metrics or ratios are those that lead to profitable income statements. After all, if you manage by the ratios, the dollars will take care of themselves. Remember, dollars go into the bank, not percentages.
Key metrics to calculate and watch include service levels (e.g., how long customers wait in your contact center’s queue), response levels (e.g., response rates to catalog or e-mail marketing campaigns) and specific costs (e.g., cost of goods). Metrics are the main influences in the success of your business, and all are essential. This month, I’ll discuss key ratio guidelines that will help you to maximize profitability.
It’s important to understand the key ratios that are standard for your specific market. This will enable you to measure against “realistic” standards. Set goals for each that will impact your bottom line. These goals can be set in a “what if” spreadsheet scenario. For example, if your cost of goods currently is 50 percent, imagine what could happen to your bottom line if you got this down to 48 percent. In this age of cost-cutting, try shaving a little bit like this for every line in your income statement. Be cautious not to overestimate, or expect all of your goals to fall into place at once. Be realistic about your expectations. As the saying goes, you want to under-promise and over-deliver.
Direct-selling expenses (e.g., catalog design, production, printing, paper, bind-in order form, postage, lists, merge/purge) comprise a significant line-item grouping on your income statement. For a consumer catalog company, this ratio typically ranges from 25 percent to 30 percent of net sales. For a business-to-business (b-to-b) cataloger, it ranges from 15 percent to 20 percent.