Three Years and $3 Million to Break Even
The holy grail for all new catalogers is a catalog program that is profitable on every mailing, including the first. I usually hear it phrased like this: “I want to finance my second catalog with the profits from the first.”
Mature catalogers usually chuckle when they hear this, but some catalogers do achieve it. How? Broadly speaking, they share the following characteristics:
1. A fairly unique product line.
2. A product line highly desired by consumers.
3. A target audience that can be found and mailed fairly economically.
4. Good-value price points.
5. Sound telemarketing and fulfillment operations.
6. A tendency to make very few mistakes—They learn about cataloging in advance from books, magazines, and/or industry leaders and experts, rather than from costly trial and error.
7. They are tightwads (ie., they control costs very aggressively).
Here are three other characteristics that such catalogers often have, though not always:
8. A product line that has a naturally high price point (leading to an average order size higher than $100).
9. A widely recognized and respected brand.
10. A cost-of-goods percentage less than 50.
So is our $3 million/three-year rule of thumb totally invalid?
Actually, it depends on how large you want your catalog business to become. It’s certainly true that a well-conceived, soundly executed catalog business can reach a point of small but sustainable profitability on a total investment of less than $1 million.
However, the business at that point will probably not be large enough to excite much interest. Experienced catalogers often remark that cataloging only starts becoming comfortable at around $10 million in annual revenue. At that point many economies of scale are starting to work: unit postage costs are becoming reasonably low, fixed costs to create the catalog are becoming low enough to justify more extravagant design and call volume is becoming large enough to justify a reasonable in-house call center and fulfillment operation. How much does it cost to grow a catalog to that size? Answering that takes more space than this article provides—but obviously, it involves the “many millions of dollars” envisioned by our rule of thumb. So maybe our $3 million/three-year rule isn’t so far off after all.