Why Catalogs Fail
Note from Jim: This is the second and final in a series of articles from fellow consultant Bob Klapprodt. I’ll be back with another column next week.
Why do catalogs fail? The answer is deceptively simple, while the remedy is not.
Most catalogs fail because they walk away from the basics; they ignore the elementary economic analyses necessary to properly measure and control the business.
The Other Guy’s Model
In the vast majority of American businesses, fixed costs are high and variable costs are low. For example, in the retail arena, companies can increase sales simply by staying open longer. The variable cost may be merely the salary of a clerk for an extra hour.
By monitoring the top line, you can fairly accurately estimate the impact on the bottom line. To increase profitability, all you need is enough incremental margin to cover low incremental costs.
For catalogs, just the opposite is true: Fixed costs are low and variable costs are high. In the most traditional cases, the way to incremental sales is through mailing more catalogs. Mailing includes increased printing and postage costs, the two highest budget lines of a catalog operation.
I normally provide my clients a model P&L that shows fixed costs should run around 7 percent of net sales, while mailing costs should be in the 30 percent range. Very few consumer catalogs can fit into this idealized model.
The result is that many catalogs lose sight of this and end up overmailing. Incremental margin is far outstripped by incremental costs — and this can happen in a hurry. The bottom line goes from black to red, and the catalog is in trouble.
The beauty of direct marketing is that when a catalog is growing, you can monitor the pieces of your growth and add circulation to list segments that are performing above average. Your P&L is in the black, and life is good.