Catalog KPIs … Keeping Your Eyes on the Ball
Key performance indicators (KPIs) are important to any print catalog or digital marketing business. Knowing how often and which KPI to track can make a huge difference to your profit and loss (P&L) statement. You need to separate the “nice to know” from the “need to know” information. Tracking nonessential KPIs might make you feel good, but are they measurable and will they make a difference in your business?
First of all, KPIs need to be quantifiable. They need to be actionable, too. Tracking something that cannot be measured or improved upon isn't important. Ask yourself what you're going to do with the KPIs you track. For example, can changes be made to a particular KPI that will improve performance?
Over the years, I've seen companies go into time-consuming detail to track results and data that would give them a headache. I’ve seen pretty graphs and KPIs that weren't important. This month, I want to share with you the universal KPIs that I feel are important to track and watch on a regular basis. What’s important is not any particular week or month, but rather the trend over a given period of time. Here are the catalog KPIs that I feel are important to track at least on a monthly basis.
The gross dollars per catalog, especially as it relates to the catalog breakeven (on a per book basis), is most important. Break-even points have always varied by mailer due to different factors. A common range of break-even points was $1.00 to $1.25 per book. Based on today’s economics, break-even points are higher. The incremental break-even point factors in the catalog cost in the mail (i.e., printing, paper, postage, etc.), the cost of goods sold, and merchandise returns/cancels. This is the most concise way to know if the results are strong. Obviously, the higher the revenue per catalog mailed, the better.
The customer repeat factor is right up there, too. If the dollars per book and the customer repeat rate are strong, a nice profit should be the result. A good rule-of-thumb is that 25 percent to 30 percent of your zero to 12-month buyer file should make a repeat purchase within one year.
Another important KPI to track is the size of your 12-month buyer file. There's a correlation between the size of your buyer file and gross revenue. I've always said that your gross revenue should increase by approximately the same percentage increase as your 12-month buyer file. For example, if your 12-month buyer file increases 10 percent, your gross revenue should also increase by approximately the same percentage. This KPI is important because your 12-month buyer file needs to increase if you expect your revenue to increase. Focus on increasing the size of your 12-month buyer file and your gross revenue will follow.
The selling expense to sales ratio is another important KPI to track. For a consumer catalog company, this ratio should be approximately 30 percent of net sales. This means that $.30 out of every dollar of net revenue is spent on printing, postage, service bureau, prospect lists, etc. For a business-to-business cataloger, this ratio will range from 15 percent to 25 percent. Keep in mind that the higher the gross profit ratio, the higher the selling expense to sales ratio will be. The opposite of this is also true.
Your gross profit ratio is another KPI to follow. Again, it's the trend over time that should be measured. If you can increase your gross margin ratio, profits will also increase. If your gross profit ratio slips, your bottom line will follow. The typical gross margin ratio for a consumer catalog company will range from 50 percent to 65 percent or higher. B-to-B gross profit margins are typically lower.
There are other KPIs you might want to track. I've given you the ones I feel are the most important. You need to determine which KPIs are important for your company. Don’t let analysis paralysis set in by trying to track too many or those unimportant KPIs. Be sure you're focused on the important KPIs for your catalog business — the KPIs that will make a difference. The number of KPIs you track isn't important. Which KPIs you track is.
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Steve Lett graduated from Indiana University in 1970 and immediately began his 50-year career in Direct Marketing; mainly catalogs.
Steve spent the first 25 years of his career in executive level positions at both consumer and business-to-business companies. The next 25 years have been with Lett Direct, Inc., the company Steve founded in early 1995. Lett Direct, Inc., is a catalog and internet consulting firm specializing in circulation planning, plan execution, analysis and digital marketing (Google Premier Partner).
Steve has served on the Ethics Committee of the Direct Marketing Association (DMA) and on a number of company boards, both public and private. He served on the Board of the ACMA. He has been the subject of two Harvard Business School case studies. He is the author of a book, Strategic Catalog Marketing. Steve is a past Chairman of both the Catalog Council and Business Mail Council of the DMA. He spent a few years teaching Direct Marketing at Indiana University in Bloomington, Indiana.
You can contact Steve at firstname.lastname@example.org.