Make Industry Benchmarks and Best Practices Work for You

Benchmarking often is described as a set of performance standards for a specific task. And best practices entail tried and true procedures that can help improve your catalog business.

Although many industry benchmarks and best practices are viewed as standards, in reality most need to be adjusted to meet the requirements, limitations and needs of a particular catalog business. There’s no one model or standard of performance that works for all.

For example, the return rate for an apparel mailer may be 25 percent (i.e., the standard), while a food cataloger might see a return rate of 3 percent (the standard for food mailers). But both companies could share the same goal for call response time. Understanding your current performance levels will help you set new goals and map out steps to greater efficiency.

This month I’ll highlight the more common benchmarks and best practices for marketing, merchandising and fulfillment/customer service.

MARKETING

Increased page counts. In general, if you increase pages, you’ll get half of the percent increase in pages in actual demand lift. So if you increase your page count from 80 to 88, the increase in pages is 10 percent. Use a factor of 5 percent as your expected demand lift when creating a pro-forma income statement to determine if the added pages will pay for themselves.

• Incremental breakeven can be calculated simply by dividing your catalog cost by your return/cancellation percentage, then dividing again by your gross margin ratio. Example:

Factors
Catalog Cost — $0.65
Return/Cancel — 5%
Margin — 55%

______
Calculation
$0.65/0.95%
1) (100% - 5%) — $0.68
2) $0.684/0.55 — 1.24
3) Breakeven — $1.24

This is the ultimate benchmark of whether a list and/or housefile segment is profitable, and it’s easy to pinpoint for your specific business.

Percent repeat buyers. Focus your time and marketing dollars testing how you can improve this key ratio. If you can benchmark your current rate of repeat buyers, and focus on turning one-time buyers into two-time customers (or more), you’ll see a significant lift in results. And your profitability will increase as a result.

Prospect testing is a key point when testing an outside prospect list. Compare a list’s zero-to-12-month buyer count against its zero-to-six-month count. If the latter is at least 50 percent of the 12-month count, this means the file generally is active. That is, the list owner is bringing new buyers onto the file.

If not, the list owner probably is mailing mostly to its housefile and not actively prospecting. In that case, the list may not be a healthy one to test. (Caveat: Mailers who sell only seasonal products may be the exception.)

Also, if you’re trying to grow your business, your prospect tests should represent 30 percent to 40 percent of your overall prospecting circulation. This should give you enough new lists to roll out in the following season to generate growth. Otherwise, stick with 20 percent to 30 percent new prospect tests, which is a more conservative strategy.

Source tracking. Gone are the days of tracking 90 percent or more of your orders to a specific source code. Now, mostly due to the increase in Web ordering, many catalogers can trace only 60 percent of their sales to a specific source code. You can make some improvement by requesting source codes at checkout, but understand there’s little you can do to improve this rate at the time of order.

Accurate tracking has become a tough marketing issue. The best way to determine which source code generated the order is through a matchback process in which your service bureau matches responders against your mailed output. But this tends to be a one-shot process usually performed after a mailing is 100 percent complete and all sales are in. Consider using a product such as ChannelView from Abacus, which utilizes a matchback process and updates your results weekly, even daily, if you have the budget.

MERCHANDISING

Merchandise mix. To find out if you have a well-balanced merchandise mix, measure sales by product category to the space you’ve allocated that segment. If you have categories that aren’t performing well, reduce the offer and expand your top merchandise groups. If you’re doing well in all categories, add pages to boost sales, rather than reallocate space. Remember, adding pages to your catalog generally is a good value and investment, provided you have the merchandise.

Percent new vs. repeat business. This is the ultimate catch-22: You need to keep adding new items so your customers stay interested in your offerings. But most new items fail. Repeat items perform much better, but your customers soon will tire of seeing the same products.

Generally, new items should represent 20 percent to 30 percent of your offering. But remember, 80 percent of the new items won’t do well enough to repeat!

In-stock position/back order rate. If you have 90 percent or more of your items in stock before your catalogs hit in-home, you’ll be in good shape when orders start coming in. Then your merchandising team can concentrate on chasing the winners rather than trying to fulfill initial orders. What’s more, your customer satisfaction rate will increase, as will your customer repeat factor.

Return rate. As mentioned earlier, this widely varies by market. If you keep a close eye on return rates by merchandise category, specific item and vendor, no doubt you’ll find areas to improve. And for every percentage point by which you reduce returns, you’ll increase your net sales by the same percentage.

Don’t wait until a season is done to do this review. By looking at early results, you may find a problem that needs to be fixed, rather than waiting for a postmortem.

Margins. These should be at least 54 percent (52 percent for a business-to-business cataloger), and any gain in margin is a gain to your bottom line. Work with vendors for better pricing to ensure you’re reaching the margins you need. Don’t set your retail above market simply as a way to increase your gross margin percentage. Why? Because you put dollars in the bank, not percentages.

FULFILLMENT/CUSTOMER SERVICE

Call response time. The standard benchmark: 80 percent of all incoming calls should be answered within 20 seconds. The remaining 20 percent should be answered within 1.5 minutes.

Your average speed of answer (ASA) also is important, and the norm is around 30 seconds. If that’s your ASA, then your call-abandonment rate will be about 5 percent. If you often answer calls in five or more rings and/or have customers on hold for more than 60 seconds, use an overflow call center service until you reach these goals.

Call length. This benchmark will depend heavily on how consultative the sell has to be, how many line items you typically have per order (2.5 is normal), how many ship-to’s you have per order and if you’re upselling or cross-selling. So, if you hear that a benchmark for call length on orders should be a specific length of time, remember that your order process may not be what the study deemed as typical.

You can reduce call length by printing the customer’s account number on each mail piece and order form. For prospects, use “finder numbers” in place of customer numbers. This will enable your system to look up names and addresses automatically, rather than your reps typing in these data.

Call abandonment. Try to keep your abandonment rate at around 2.5 percent or less. Using an overflow service will help manage peaks in call volume.

Web order confirmation. Most customers now expect to get an order acknowledgement via e-mail within a few hours; a follow-up e-mail with details including expected shipping dates should arrive within 24 hours; and yet another e-mail should be received letting them know when their orders shipped. If possible, the last e-mail should contain a link to track their orders. (These all are excellent reasons to capture customers’ e-mail addresses when they place orders by phone.)

Speed of shipment. Same-day or 24-hour shipping is highly desirable, but often not possible due to system and resource limitations and drop-ships. If so, you still can set goals and improve your overall processing time.

Order accuracy. Your orders should be more than 99 percent accurate. If not, is the problem in the ordering or the pick/pack/ship process? See if you can narrow this further by the individuals who have the poorest accuracy rates. Give them additional training. Or when possible and appropriate, use incentives to improve employees’ accuracy rates.

Processing returns and exchanges. If you process returns and exchanges within 48 hours, you’ll reduce the number of customer service calls and related costs.

CONCLUSION

While knowing your current performance levels and setting goals are important, invest some time, effort and money watching your competitors. For instance, if you currently ship orders within 72 hours and you set your goals to ship within 48 hours, how does this compare to your competition? Are they shipping the same day? If so, set your short-term goal to shipping within 48 hours and your long-term goal to shipping same-day.

Measure where you are, where you want to be and where your competitors are (to ensure your goals are meaningful to your marketplace). Then set achievable goals and create an action plan to make them happen. Periodically re-evaluate the benchmarks and best practices you’ve set for your business to ensure you’re on track.

Stephen R. Lett is president of Lett Direct, a catalog consulting firm specializing in circulation planning, forecasting and analysis. He can be reached at (302) 537-0375 or by e-mail via his Web site, www.lettdirect.com.