Strategy-Hurdling to Profitability (1,147 words)
By Stephen Lett
Your catalog is like a piece of beachfront real estate: every square inch of space is valuable. And every square inch of space should be considered selling space—from the front cover to the back cover.
On every page, every product must pay its way for the space it occupies. Some catalogers like to use a traditional "square inch analysis," fairly common in the industry. I prefer a somewhat different method to measure the performance of any given product, which is based on the calculation of a "hurdle rate" —the amount of sales a product needs to bring in, given its space allotment on a page, to be profitable. Let's look at how to determine the hurdle rate and proper mark-ups in your catalog, in order to evaluate the success of the merchandise at the SKU level.
Product Selection First
I like to leave the actual product selection up to merchandising experts. The professional merchandisers have a real knack for knowing which items will sell best. After all, selecting products is a real art. My focus is on the analysis of the merchandise. What products sold? What didn't sell? How many pages should the catalog be? How much space should an item have? These are all important questions, which must be answered in order to maximize the earnings potential.
I have always subscribed to the "one-third, one-third, one-third" rule as it relates to merchandise in a catalog. This means that one-third of the items in a catalog will be the real winners—the best sellers. One-third will perform so-so, and the other third will be non-sellers. If you rank your sales by item, you will probably find this to be true for you, too. It is not brain surgery to realize that some items will sell better than others, and every item is not going to pass the hurdle rate. Obviously, the goal is to know what items to drop, how to adjust the selling space for the marginal items, and how to select more top selling items.