Get your metrics positioned

By Larry West

Whether your catalog company is at $10 million or $150 million in revenue, there are questions about the key metrics of cataloging and Web marketing you should ask yourself — and know where and how to find answers — if you expect to regularly generate above-average profits.

Here are the key areas; some are in the form of questions that I use when helping direct marketers prepare their strategic plans, raise growth financing or sell part or all of their business.

Merchandising

Q1. Describe your merchandising and buying function. Is it a “one-man show?”

Q2. Who attends trade shows, makes overseas sourcing trips, selects final products? Is there a true No. 2 lead merchant?

Q3. Discuss your best merchandise growth categories and their estimated gross profit margins.

Q4. What are your total sales and gross profit dollars from exclusive items over the past few years?

Q5. Same question for your import program: Are the resources in place to expand the percentage of imports you sell? Are the people you work with overseas agents or your employees?

Q6. Who are your top two competitors? If they’re larger or have greater growth, what resources do they have that you don’t?

Q7. If you could select a perfect partner or new parent company, what resources would either of them best bring to you (e.g., qualified prospect names, economies of scale in freight out, catalog production, etc.)?

Marketing, Prospecting

Q1. What percentage of your total mailings are to prospects? (Note: Although this varies by business size, product line and the amount of Web marketing done by the cataloger, it generally should be 35 to 60 percent for companies whose 12-month customer list is growing.)

Q2. Has your 12-month buyer file been growing at least 4 percent per year? If not, why?

Q3. Can you prospect at, or above, a breakeven defined as contribution to fixed expense as equal to zero? In only your primary season? Or during your off-season for your best lists? In both co-op databases and regular rental names?

Q4. If you pay to secure new customers, is the cost per customer justified economically by the profits of the customer in the first 18 months after acquisition? Is the lifetime value model used for this calculation up to speed (based on your actual latest profit and loss percentages, line by line)?

Q5. Concerning the character of your proven prospect universe (i.e., the quantity of outside names you can prospect to with at least breakeven or an acceptable cost per customer level) for your biggest catalog drop of the year, is there an extra quantity of names you’re not mailing that’ll perform and give you incremental growth? Are these names already in your circ plan?

Q6. In terms of your Web site and search performance success, of all the new customers you develop each year, as fellow Catalog Success columnist George Mollo believes — as do I — an approximate 10 percent to 13 percent should’ve come to you without a prior direct response (or Web) contact, after all your matchback procedures. These names represent strength in brand and Internet marketing. Are you at this 10 percent to 13 percent level? If not, why?

Conclusion

The goal of all these questions is to generate a consistent 8 percent to 10 percent (or greater) EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) level in your annual P&L statement. So, you’ll want to keep these questions and metric performance norms in mind. Share all of them with key managers and measure management performance against these metrics and questions. Use these metrics to do the following:

● Help prepare your yearly mail plan and individual segment circ levels;

● Set and meet the EBITDA objectives of your strategic plan; and

● Ensure that when the timing is right, you’re positioned to raise capital, sell equity or cash out.

Larry West is president of West Cos., a New York-based valuations and acquisitions consulting firm. You can reach him at dmgrowth@yahoo.com.

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