What is Catalog Breakeven?

In catalog marketing strategy and campaigns, planning for profitability is built right in.

It’s simple: we let the data drive our decisions and then we use the data to decide. The nature of data is such that, over time, it strengthens and firms up our assumptions even more — or immediately debunks them.

Whether you’re planning a catalog mailing campaign, evaluating the feasibility of new prospect lists, or considering catalog format tests, always calculate your catalog breakeven in advance.

Your catalog breakeven is both a number and a process. It can help you determine where to cut off mailings. It also allows you to determine which prospect lists and house names are actually delivering on that proverbial “ROI” your data is looking for.

A catalog’s breakeven takes into consideration the cost to print a catalog, the postage per piece, list rental costs, and product CGS.  Once you calculate the minimum revenue/book required to break even in a campaign, you can then assign the projected response rate and average order by segment to determine which catalog segments will be profitable.

How do you calculate it?

We created a handy catalog breakeven calculator to help you figure out catalog breakeven without worrying about the math. You can bookmark the page and use it as a resource for your catalog planning needs.

This post, however, is all about helping you gain clarity and insight into what these numbers mean and why they’re significant for a successful strategy.

To get started, you’ll need a few key variables:

• Net Sales % – for businesses that experience a high rate of returns or cancels, or typically offer % off promotions, this is an important factor in calculating breakeven.

• Cost of Goods Sold (CGS) – this has a huge impact on breakeven. Private label goods tend to have a much lower CGS %.

• Operational costs – how much it takes to fulfill an order, from phone calls to picking & packing.

Fixed vs. Variable Catalog Costs

When calculating catalog costs, you’ll need to separate these into:

• Fixed or one-time costs: these remain the same, regardless of how many catalogs are printed (and they’re incurred only once). An example of a fixed cost is photography or color separations.

• Variable costs: these change, based on how many catalogs you print (paper, printing, postage). Every additional catalog printed and mailed adds to the overall expense of variable costs although the cost per piece decreases if you increase the print quantity.

Source: Unsplash

In a B/E analysis,  “fixed creative costs” must be taken into account. These are usually significant and can include catalog design and layout, photography, styling, page production and color separations.

If creative assets are used for both direct mail and digital marketing, then allocate a % of the costs to each channel.

Where are these catalog costs mapped to?

Some catalog brands assign the fixed creative costs to the customer file but not to the prospect mailings.  The rationale here is that you always mail to your customers and therefore increasing the print quantity for prospecting should be considered a variable expense.

For companies that mail internationally, it’s best to separate the postage and calculate breakeven for each of your top countries. For example, determine your US breakeven, your Canadian breakeven, and then one for all other countries combined.

Here are a few other things to keep in mind:

• B/E analysis is complicated enough as it is, with multiple moving pieces. To keep things “stupid simple,” begin with the basic cost of sending the catalog in the mail and then add in fixed costs to refine these calculations.

• Make the breakeven analysis part of each new catalog effort. When planning catalog circulation, ensure that someone has addressed the key costs in the mail as well as other variable costs for the upcoming season.

• Remember that the most accurate breakeven analysis considers catalog costs like returns, cancellations, fulfillment and promotions in the mail, updated seasonally.

• Once a catalog campaign has concluded, you need to have a breakdown or post-mortem session to analyze what you forecasted, what the actual results were and where any gaps came from.

The Importance of the Breakeven Point

Calculating the breakeven point and performing B/E analysis is an ongoing process that delivers catalog marketers some key numbers.

But what do you do with these numbers? As we saw from the calculations process, much of the metrics that we use at a particular “level” of calculation will form the historical data or the basis of our assumptions for the next level.

In this way, B/E analysis as an activity allows us to forecast our thresholds for successful catalog campaigns and determine profitability.

It also allows us to track vulnerabilities and drop-off points, especially when used in the annual circulation planning process.  Many of our catalog clients have been able to keep marginal customers in their catalog circulation plans and contact strategy by creating special catalogs with smaller page counts.  By running B/E analysis, we can make adjustments to ensure profitability.

Finally, the catalog B/E calculation and analysis process tells us the cost of new customer acquisition.  From here, we can get leaner or more creative with our catalog campaigns to adjust these numbers for a greater response rate.  For example, many catalog brands print a prospecting version of the catalog that features best-selling items and a smaller page count.  By focusing on customer favorites instead of new, unproven items, the cataloger is able to lower its risk and costs while prospecting for new customers.