### Pick A Path

We all know that Amazon plows every penny of profit back into CapEx.

Meanwhile, here in catalog land, we run a \$50,000,000 business that generates \$2,500,000 of pre-tax profit ... 5% ... not good ... not awful ... just a mediocre level of performance.

Let's say that you took that \$2,500,000 of pre-tax profit, and ran it back into what are currently unprofitable customer acquisition activities.
• Average Catalog Cost = \$0.50.
• Expected \$ per Book, Incremental 8,500,000 Co-Op Names = \$0.70.
• Profit Factor = 40%.
• Co-Op Cost = \$0.06 Per Name.
• Extra Co-Op Mailings = 8,500,000.
• Extra Co-Op Demand = \$5,950,000.
• Extra Co-Op Profit = \$5,950,000*0.40 - 8,500,000*(\$0.50+\$0.06) = -\$2,380,000.
• Total Company Pre-Tax Profit = \$2,500,000 -\$2,380,000 = \$120,000.
Look at that. You just grew your top-line by 11.9%. Did you generate profit? No.

This is what Amazon is doing.

Your business is stalled at \$50,000,000 and you cannot increase merchandise productivity. You are stuck.

You could forgo profit ... all profit ... and invest every penny of anticipated profit with your co-op partners ... and your business might grow by 10% or 11% or 12%. You trade profit for growth.

Do that for three or four years, and all of a sudden your \$50 million dollar business is a \$65 million dollar business.

You get to pick.

Do you want profit? If so, you limit growth.

Do you want growth? If so, you limit profit.