Small catalogers must profit Every Day!

BY: JIM COOGAN

The Key Is Circulation Planning Down To Your Daily Breakeven

Featured Client: Chamisa Catalog

Small catalogs need to make a profit every day.  Circulation planning must drive enough sales to cover your daily fixed costs.  Many small catalogers don’t make this straightforward calculation as part of their circulation planning.  Here is the format for circulation planning all the way down to your daily breakeven sales. 

1. Calculate your sales from a future catalog mailing.  List each house file and prospecting segment to be mailed.  Include the history from mailing each segment.  The history should be the sales per book from each mailing over the last 12 months.  The most important data is the results from the most recent mailings.  Look carefully at the trends for each list segment.  Are results the same from each drop or are results decaying over time?   

The sales per book prediction are the key to forecasting sales accurately.  If you can look at historical results and predict sales per book, you can project sales for each segment and total sales.        

                                                  Sales per    Sales per Book          Sales per Book

Segment          Circulation Book           Last Mailing          Previous Mailings    

0-6m           15,000                  $6.25            $6.50                    $6.00 / $7.25 / $7.00

7-12m                    8,000            $5.00            $5.50                    $5.75 / $6.00 / $6.10

13-24m          6,000            $4.20            $4.50                    $4.80 / $4.90 / $5.10

Rental List A         5,000  $1.40            $1.60                    $1.80 / ---- / ----

Rental List B  5,000                 $1.30            $1.45                    $1.50 / --- /---

Rental List C 5,000                  $1.30            $1.40                    $1.40 / $1.30 / ---

2. With the segments to be mailed, their circulation and a prediction           of the Sales per Book (SPB) from each segment, you have the elements to calculate top line sales. 

Segment               Circulation           Sales Per book          Total Sales          

0-6m buyers           15,000                           $6.25/book                   $93,750

7-12m buyers          8,000                      $5.50/book                   $44,000

13-24m buyers          6,000                      $4.50/book                   $27,000

Rental list A           5,000                      $1.40/book                   $7,000

Rental list B           5,000                      $1.30/book                   $6,500

Rental list C           5,000                      $1.30/book                   $6,500

Total                     59,000                           $3.13/book                   $184,750 

3. The next step is to calculate from top line sales down to the “profit” or amount generated by this catalog mailing available for contribution to fixed and overhead. 

Calculate Profitability  (From top line sales to contribution to fixed)S

ales                               $184,750     

Circulation                                59,000 catalog mailed    

Cost per catalog                                      $.65/catalog

     (Creative, printing, postage, lists & merge)    

Catalog “in the Mail” cost              $38,350     

Merchandise Margin                             55%    

Margin                                           $101,612     

Average order size                         $75/order    

Number of orders                          2,463 orders    

Variable cost per order                     $9/order variable selling cost

     (Shipping cost, pick/pack/ship, call center and any other direct costs     

Of taking and shipping an order)     

Total Variable cost                             $22,167     

Available contribution for fixed and overhead

(Sales less merchandise cost less catalog cost less variable selling cost)

Contribution                           $41,095 

4. Next calculate the number of days over which this catalog will provide sales, the contribution from the catalog broken down into the contribution per day, the fixed overhead and the contribution needed per day  for the business to cover its fixed overhead and breakeven.       

Calculate Breakeven and Profits Per Day                                            N

umber of Days this catalog will deliver sales

(First order date of this drop until first order date of the next drop)

                                      50 days            

Contribution per day                         $821 contribution per day    

Annual fixed overhead          $164,250    

Fixed overhead per day                  $450 / day    

Profit per day                                     $371 per day in profit 

Most catalogers calculate the contribution from each catalog.  The financial planning gap is that many catalogers don’t calculate if the contribution from each catalog drop will produce enough sales, margin and contribution to show a daily profit during the weeks that the catalog is delivering sales.   

If the catalog is driving enough sales for the business to operate above breakeven, then the issues are how the catalog can squeeze some extra profit out of the season.  If the catalog is projecting a loss for the business, then it’s back to the drawing board to find ways to deliver enough daily sales for the business to operate each day in the black.           

What are the alternatives if you are below breakeven and your circulation plan shows you operating at a loss? 

1. Scrub your list universe to find more circulation you can mail profitably especially in the marginal segments of the house file. 


2. Find ways to optimize your prospecting circulation to raise the response rates from your prospecting list universe. 


3. Cut circulation of house or rental segments that are projecting below your breakeven.  Cut your losses segment by segment. 


4. Add a house remail of your very best lists. 


5. Shorten up the time between mail drops. 


6. Cut costs, raise prices, add a promotional offer, and change your staffing for the slow seasons. 

Plan so that you are making money every day and you’ll maximize your profits for the year.  Don’t stop planning until you’ve planned all the way down to your daily breakeven and have a plan in place cover your breakeven costs every single day.