Measuring Profitability Through Square-Inch Analysis: An Updated Approach
For catalogers, square-inch analysis serves as your scorecard. It’s a tool that tells you how much profit each item and page delivers. Some square-inch analysis is meticulously tabulated with the exact number of catalog pages each item occupied over the span of several catalogs. Other analyses are more casual, with less attention to the exact space allocation and total cost of the page space devoted to each item. But whether the format’s rigorous or relaxed, the data’s precise or just directional, the underlying purpose of square-inch analysis is simply to tell us whether an item is profitable. After all, why sell items that aren’t profitable?
There are exceptions to the rule against selling items that aren’t profitable. Newer products and items whose sales have been increasing (and will, presumably, soon be profitable) are the biggest exceptions. At times, an entire family of products must be sold together, for example. Each individual item in the group may not be profitable. But when sold together, the entire family is profitable.
Some items are seasonal and barely break even in their offseasons — but are quite profitable in season. Some seasonal catalogs need to sell in the offseason just to cover their overheads and keep their staffs working. But the general rule of cataloging is to use square-inch analysis to determine the profitability of each product and to continually prune the product selection so only profitable products are offered.
Calculating the square-inch profitability of an item is straightforward. Follow the steps provided below.
2. Amount of page space for the item (1⁄4-page, 1⁄8-page, etc.)
3. Cost of the catalog page (printing, postage, creative and list cost of the catalog divided by the number of pages)
4. Cost of catalog space devoted to the item
6. Margin percentage
8. Catalog cost
9. Profit or amount available for fixed and overhead costs after subtracting catalog cost and cost of goods sold
10. Profit percentage (profit divided by sales).