Three Years and $3 Million to Break Even
The longer you’ve been in cataloging, the more variations you will have heard for this month’s rule of thumb. Over the years I’ve heard two years and $2 million, four years and $4 million, even five years and $5 million—but all variations seem to agree that it takes several years and about the same number of millions of dollars for a new catalog to reach breakeven.
How reliable is this rule? Are there exceptions? Or has launching a successful catalog truly become a millionaire’s game these days? We’ll find some answers in this column, beginning with a precise definition of our rule:
The Rule of “Three Years and $3 Million to Break Even”:
If you launch a new catalog and do everything fairly intelligently, you’ll still need to invest three years and $3 million dollars before you reach the first year in which annual revenues equal annual costs.
Is this rule of thumb actually true?
In logic, a proposition is disproved by finding a single exception, and in that sense, this rule of thumb is surely false, since a few catalogs do achieve profitability on their very first mailing.
But it’s also true that those catalogers are definitely the exceptions—Most new catalogs nowadays are unprofitable at launch, and remain unprofitable for several years.
Is “breakeven” a fixed point for a catalog?
No. There are actually two basic points at which a cataloger chooses to break even.
The first is when the housefile (prior buyers plus catalog requesters) has grown just large enough to generate enough profits from each mailing to pay for designing, printing and mailing the next catalog drop to housefile names only. This is the first break-even point a new cataloger will reach, and most catalogers will choose to ignore it, since achieving breakeven at this early point requires stopping all prospect mailings. However, many non-catalogers (e.g., bank loan officers) become excited when they see this break-even point arrive, and recommend (or even insist) that a cataloger stop and achieve minor profitability at this point, by stopping all prospect mailings. This leads inevitably to a shrinking housefile and eventual business collapse (yes, I’ve seen it happen).