April 17, 2013

Catalog Marketing - Profit Means Everything!

You see it everywhere you go ... profit just laying on the ground ... with nobody motivated to bother to pick it up and stick it in their wallet!!

When a business is dysfunctional, profit leaks out, everywhere.  From analysts choosing to measure "conversion" instead of profit to email wonks looking at opens/clicks/conversions to cloud-based catalog circulation folks, we barely bother to measure profit.

Internally, we lack discipline ... high return rates, high pick/pack/ship expenses, all of it hurts the p&l.

Look at this example ... the first company does a credible job of generating profit ... with 45% of demand flowing through to profit.

The second company lets profit leak, or they fail to measure profit accurately and just stick a "40%" factor into their decision-making processes.

The first company, with a 45% profit factor, can mail down to 1,800,000 circulation depth ... generating $4,024,922 demand.

The second company, with a 40% profit factor due to either a leaky profit bucket or an analyst making a random, arbitrary 40% profit designation, can only afford to mail 1,400,000 customers, generating $3,549,648 demand.

Which business would you rather be part of?  I'd pick the first business ... the focus on profit allows the business to generate 13% more demand.

If the second business has a leaky bucket, then this is the true impact on the business.

  • Scenario #1 = $4,024,922 demand, 40,249 orders, $911,215 profit.
  • Scenario #2 = $3,549,648 demand, 35,496 orders, $719,859 profit.
If the second business is equally profitable to the first business, but the business has sloppy analysts who mis-estimate profit, then this is the impact:
  • Scenario #1 = $4,024,922 demand, 40,249 orders, $911,215 profit.
  • Scenario #2 = $3,549,648 demand, 35,496 orders, $897,342 profit.
The first example is the fault of every employee in the company, the penalty for being sloppy.

The second example is the fault of just one employee, making a bad decision estimating how much demand flows-through to profit.  If this company sends 10 mailings a year, then one analyst, one individual, is costing the company $5,000,000 in annual demand - 50,000 orders (and likely, 40,000 customers who would generate incremental future profit), and $140,000 annual profit.

One analyst - acting alone, costing the business a 13% sales increase.

In catalog marketing, profit means EVERYTHING!  There is no margin for error, there is a discipline that must be adhered to - without discipline, the business suffers - just because of one or two people.

And if you outsource your catalog circulation efforts, well, just how much attention to detail do you think you're getting vs. in-house resources?  Your outsourcing efforts could easily harm your business by 10%, if you are not telling your cloud-based circulation experts how to execute every single aspect of circulation management.

Catalog Marketing - Profit Means Everything!  Maybe business is in the tank because of a lack of discipline around measuring profit?