Going From Square Inch Analysis to Setting the Number of Pages for Your Catalog

Here's the analysis for catalogers to review page and item profitability. What do you do with the calculation of profitability? I push for a few simple business rules

• If the item or page is unprofitable, why continue it?
• If an item or page is profitable, why take it out of the catalog?
• Keep the profitable items and drop the unprofitable items.

The page count decision should be governed by the numbers. Here are some top-line recommendations:

• More items per page? Putting more items on a page almost always makes sense.
• Will you sell items not in the catalog but only on your website? Typically sales fall off dramatically for items that are web only.
• Should you consider fewer pages? Look at your current sales and profits per page. Are all pages profitable? Are all items profitable? Could you cut out four pages or eight pages without reducing profitable sales? If so, consider pruning out unprofitable pages.
• What are the savings when you go below the 3.3-ounce threshold where postage is fixed. Postage is typically 50 percent to 65 percent of a catalog's cost, so if you go below the 3.3-ounce postage minimum, you don't save on postage. Therefore, your savings are only with printing and paper. (Usually a 52-page catalog is right around the 3.3-ounce weight where you pay the fixed postage minimum.)

A cataloger's basic scorecard is their square inch analysis, which tells how much profit each item and page delivers. Some square inch analysis is meticulously tabulated with the exact amount of catalog pages each item has had over the span of several catalogs. Other analysis is more casual, with less attention to the exact space allocation and the total cost of the page space devoted to each item. Whether the format is rigorous or loose and whether the data is precise or just directional, the underlying purpose of square inch analysis is simple: it tells you whether each item is profitable or not. The issue is simple: Why sell items that aren't profitable?

Are there exceptions to the rule against selling items that aren't profitable? New items and items whose sales are increasing and will soon be profitable are the biggest exception. Sometimes an entire family of products must be sold, and some of the individual items are unprofitable but the entire family is profitable. Some items are seasonal and barely breakeven in the off-season, but are quite profitable in-season. Some seasonal catalogs need to sell in the off-season just to cover their overhead and keep their staff working. However, the general rule of cataloging is to use square inch analysis to determine the profitability of each product and to continually prune the product selection so that only profitable products are offered.

Calculating the square inch profitability of an item is straightforward. Follow these steps:

1. item
2. amount of page space for the item (1/4 page; 1/8 page; etc.)
3. cost of the catalog page (printing, postage, creative and list cost of the catalog divided by the number of pages)
4. cost of catalog space devoted to the item
5. sales
6. margin percentage
7. margin
8. catalog cost
9. "profit" or amount available for fixed costs and overhead after subtracting catalog cost and cost of goods sold.
10. "profit" percentage (profit divided by sales)

So the report format that's used is as follows (columns should be in this order): page, item, sales, margin percentage, margin, page allocation, page cost, profit.

The next step is to group the items into product categories so you can see which categories rank highest and lowest in terms of sales and profitability.

How can you translate the square inch analysis into planning the number of pages for your next catalog? Catalogers group their products into categories and rank the categories from most profitable to least profitable. The first decision is whether to keep the pages that are unprofitable. The next decision is whether to increase the number of pages that are profitable. Expanding or contracting the number of pages to fit the profitable merchandise is the shorthand method to set the number of pages for a future catalog. A summary of the product pages is simple (again, the columns in your report should be in this order): product category, number of pages, category sales, category profit, planned pages for category in next catalog.

What are the issues in using square inch analysis to set the number of pages? Consider the following:

1. Are all the items in the catalog profitable? Are the categories profitable?
2. Does the square inch analysis tell you to cut pages, add pages or maintain the same page count?
3. Are all sales being included in the square inch analysis or just sales driven by the catalog? If web sales are a substantial portion of your business, sales may be overstated when calculating catalog square inch.
4. The best products (i.e., the most profitable) should get the best real estate. Are you giving your best real estate to your best-selling categories?
5. Are product categories being ranked by sales or profit?
6. Is there a second tier of products that can be profitable when listed on the web but don't meet the threshold to be included in the catalog? Are there some items or categories that can be included in the catalog seasonally or less often than every catalog?

Catalogs are a simple business. If all the list segments you mail and each item of merchandise is above breakeven, your business should prove profitable. Draw the line at lists and merchandise that aren't profitable. Setting the number of pages for your catalog involves allocating enough real estate to those profitable products, and the number of pages should flow from the amount of space needed to merchandise all the profitable items.

The steps are simple: first, either a rigorous or relaxed square inch analysis of product. Second, sort your product categories into number of pages needed for each category. Third, prune the weak categories and increase the merchandise in your best categories. The optimum number of pages should be the result. Talk with your printer to find the most economical page configurations that fit your needs and you should be ready to set your page count and get printing bids.

Jim Coogan is the founder and president of Catalog Marketing Economics, a consulting firm focused on catalog circulation planning. Jim can be reached at jcoogan@earthlink.com.