Ending A Catalog: A Simple One-Year Forecast

There are two important metrics that must be satisfied if you want to consider not mailing catalogs anymore.

1. Your organic percentage, via mail/holdout tests, must exceed 50% at minimum.
2. The fraction of new customers you generate (annually) via catalog marketing must be < 20%.

The new customer percentage is really important.

Let's just look one year in advance. Pretend you retain 30% of 100,000 twelve-month buyers, year-over-year, spending $200 each. Pretend you generate 70,000 new/reactivated buyers, spending $120 each.

• Existing Buyers:  100,000 * 0.30 * $200 = $6,000,000.
• New/Reactivated Buyers:  70,000 * $120 = $8,400,000.
• This Year = $14,400,000 Demand.
• Next Year = 100,000 * 0.30 + 70,000 = 100,000 Twelve-Month Buyers.

Ok, let's assume that just 20% of new/reactivated customers come in via print. Let's also assume that your organic percentage among twelve-month buyers is 80%, meaning if you don't mail catalogs, 80% of the volume remains.

• Existing Buyers:  100,000 * (0.30*0.80) * $200 = $4,800,000.
• New/Reactivated Buyers:  70,000*0.80 * $120 = $6,720,000.
• This Year = $11,520,000 Demand.
• Next Year = 100,000 * (0.30*0.80) + 70,000*(0.80) = 80,000 Twelve-Month Buyers.

In other words, about 20% of your business disappears. If you play that out over five years, maybe 30% of the business disappears in total. But you might be much more profitable (or you wouldn't be considering this concept).

Now let's assume that 50% of demand is organic, and let's assume that 50% of new/reactivated customers are generated via catalogs. The math is ... different.

• Existing Buyers:  100,000 * (0.30*0.50) * $200 = $3,000,000.
• New/Reactivated Buyers:  70,000*0.50 * $120 = $4,200,000.
• This Year = $7,200,000 Demand.
• Next Year = 100,000 * (0.30*0.50) + 70,000*(0.50) = 50,000 Twelve-Month Buyers.

To recap:

• Business As-Is = $14,400,000. 
• Good Metrics = $11,520,000.
• Catalog-Dependent Metrics = $7,200,000.

I could play this out for five years, but there's no reason to. Let's assume a 40% flow-through to profit and $3,000,000 in annual catalog expense.

• Business As-Is = $14,400,000*0.40 - $3,000,000 = $2,760,000 variable profit.
• Good Metrics = $11,520,000*0.40 - $0 = $4,608,000 variable profit.
• Catalog-Dependent Metrics = $7,200,000*0.40 - $0 = $2,880,000 variable profit.

The majority of catalog professionals reading this DO NOT WANT to manage a $7.2 million dollar brand that is more profitable than a $14.4 million dollar brand. I know this to be true, because you tell me you do not want your business to be half the size it is today at the same level of profitability.

The majority of owners, however, DO WANT to manage an $11.5 million dollar brand that is wildly more profitable than a $14.4 million dollar brand with catalogs.

This, quite honestly, is the math you need to perform. As long as you have mail/holdout tests, you can perform this math. It's easy!!

If you want me to take a shot at it, I'll produce a five-year guesstimate of where your brand would go without catalogs for just $9,900. Contact me now (kevinh@minethatdata.com) and I'll produce a forecast for you, ok??!!