September 06, 2011

How Organic Demand Plays Out

Once you've executed your mail/holdout groups, you'll realize what your organic percentage is.

Let's take an example where a business sends 12 catalogs a year, and after matchback, believes that it generates \$30.00 across the twelve catalogs.  Assuming zero to fifteen possible contacts, here's what catalog demand actually looks like:

 Catalog Demand Table Organic Percentage Catalogs 20% 40% 60% 80% 0 \$0.00 \$0.00 \$0.00 \$0.00 1 \$4.21 \$3.16 \$2.11 \$1.05 2 \$6.85 \$5.14 \$3.42 \$1.71 3 \$9.09 \$6.82 \$4.55 \$2.27 4 \$11.12 \$8.34 \$5.56 \$2.78 5 \$13.00 \$9.75 \$6.50 \$3.25 6 \$14.77 \$11.08 \$7.39 \$3.69 7 \$16.46 \$12.34 \$8.23 \$4.11 8 \$18.07 \$13.55 \$9.03 \$4.52 9 \$19.62 \$14.72 \$9.81 \$4.91 10 \$21.12 \$15.84 \$10.56 \$5.28 11 \$22.58 \$16.94 \$11.29 \$5.65 12 \$24.00 \$18.00 \$12.00 \$6.00 13 \$25.38 \$19.04 \$12.69 \$6.35 14 \$26.73 \$20.05 \$13.37 \$6.68 15 \$28.06 \$21.04 \$14.03 \$7.01

Here's what organic demand actually looks like:

 Non-Catalog Demand Table Organic Percentage Catalogs 20% 40% 60% 80% 0 \$6.00 \$12.00 \$18.00 \$24.00 1 \$6.00 \$12.00 \$18.00 \$24.00 2 \$6.00 \$12.00 \$18.00 \$24.00 3 \$6.00 \$12.00 \$18.00 \$24.00 4 \$6.00 \$12.00 \$18.00 \$24.00 5 \$6.00 \$12.00 \$18.00 \$24.00 6 \$6.00 \$12.00 \$18.00 \$24.00 7 \$6.00 \$12.00 \$18.00 \$24.00 8 \$6.00 \$12.00 \$18.00 \$24.00 9 \$6.00 \$12.00 \$18.00 \$24.00 10 \$6.00 \$12.00 \$18.00 \$24.00 11 \$6.00 \$12.00 \$18.00 \$24.00 12 \$6.00 \$12.00 \$18.00 \$24.00 13 \$6.00 \$12.00 \$18.00 \$24.00 14 \$6.00 \$12.00 \$18.00 \$24.00 15 \$6.00 \$12.00 \$18.00 \$24.00

Make sense?

Here's what total demand looks like:

 Total Demand Table Organic Percentage Catalogs 20% 40% 60% 80% 0 \$6.00 \$12.00 \$18.00 \$24.00 1 \$10.21 \$15.16 \$20.11 \$25.05 2 \$12.85 \$17.14 \$21.42 \$25.71 3 \$15.09 \$18.82 \$22.55 \$26.27 4 \$17.12 \$20.34 \$23.56 \$26.78 5 \$19.00 \$21.75 \$24.50 \$27.25 6 \$20.77 \$23.08 \$25.39 \$27.69 7 \$22.46 \$24.34 \$26.23 \$28.11 8 \$24.07 \$25.55 \$27.03 \$28.52 9 \$25.62 \$26.72 \$27.81 \$28.91 10 \$27.12 \$27.84 \$28.56 \$29.28 11 \$28.58 \$28.94 \$29.29 \$29.65 12 \$30.00 \$30.00 \$30.00 \$30.00 13 \$31.38 \$31.04 \$30.69 \$30.35 14 \$32.73 \$32.05 \$31.37 \$30.68 15 \$34.06 \$33.04 \$32.03 \$31.01

And finally, here's what total profit looks like:

 Total Profit Table Organic Percentage Catalogs 20% 40% 60% 80% 0 \$2.10 \$4.20 \$6.30 \$8.40 1 \$3.08 \$4.81 \$6.54 \$8.27 2 \$3.50 \$5.00 \$6.50 \$8.00 3 \$3.78 \$5.09 \$6.39 \$7.70 4 \$3.99 \$5.12 \$6.25 \$7.37 5 \$4.15 \$5.11 \$6.08 \$7.04 6 \$4.27 \$5.08 \$5.89 \$6.69 7 \$4.36 \$5.02 \$5.68 \$6.34 8 \$4.42 \$4.94 \$5.46 \$5.98 9 \$4.47 \$4.85 \$5.23 \$5.62 10 \$4.49 \$4.75 \$5.00 \$5.25 11 \$4.50 \$4.63 \$4.75 \$4.88 12 \$4.50 \$4.50 \$4.50 \$4.50 13 \$4.48 \$4.36 \$4.24 \$4.12 14 \$4.46 \$4.22 \$3.98 \$3.74 15 \$4.42 \$4.07 \$3.71 \$3.36

If, for a given customer, the organic percentage is 20%, then 12 catalogs is the right number to send to the customer.

If, for a given customer, the organic percentage is 40%, then just 4 catalogs is the right number to send to the customer.

If, for a given customer, the organic percentage is 60%, then just 1 catalog maximizes profitability.

And if, for a given customer, the organic percentage is 80%, then you are better off not mailing any catalogs to the customer.

Can you see how you end up dramatically over-circulating to your housefile when you believe in your matchback analytics?

On Thursday, we'll talk a bit about what you do with the money you save when you learn how significant an impact the organic percentage has on your business.