December 17, 2019

Cutting Back 40% ... Close To Optimal!

Here's our base case.

Across numerous simulations, the "optimal" solution occurred when we cut back by 40% across the board. What does the business look like over time when we do this?

When we cut back ... WAY BACK ... we arrive at an optimal solution. But how "optimal" is the solution? It's not very optimal.
  • Over five years, you give up $7,000,000 in top-line volume.
  • You save $3,500,000 in ad cost ... that's not a trivial amount.
  • Total five year profit only increases by about $250,000.
This is one of the dirty little secrets of struggling catalog brands. Nearly half of the ad-cost spent yields nothing ... NOTHING! You just grow sales somewhat, creating a stronger housefile, but a housefile that is fundamentally unproductive.

I harp on merchandise productivity and customer acquisition for a reason. Both merchandise productivity and customer acquisition MOVE THE NEEDLE ... they improve the trajectory of a brand.

As is almost always the case, the issue isn't catalog productivity ... catalog productivity is largely meaningless. The issue is what you sell coupled with how many new customers you can find at an acceptable cost.

Now, what happens if the organic percentage isn't a paltry 24%, but instead is a robust 48%? We'll find out tomorrow.

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