The Puzzling, Frustrating 1 Percent Response Rate

For this inaugural article, no rule of thumb could be better to start with than the oldest, strangest, most puzzling and often the most frustrating rule of them all: the 1 percent response rate.

Definition: 1 Percent Response Rule

Most catalogers have at least heard of this rule, but I’ve never seen a really careful definition of it. So here’s my precise definition of the 1 percent response rule:

The 1 Percent Response Rule: If you mail an average-size catalog, with merchandise of average desirability, at average-value price points, to an average selection of response lists, then your average response rate (number of orders received, divided by number of catalogs mailed) will be 1 percent.

Where did the 1 percent response rule come from?

To the best of my knowledge, there is no theoretical foundation for the 1 percent response rule—no psychological, sociological, economic or business reasons for it. The rule exists simply because catalogers see it happen over and over and over again. Actually, it’s surprising that such a widely recognized rule should have no theoretical justification. But it doesn’t. It just is.

How can you apply the rule to your catalog?

Before you can use the 1 percent response rule in your catalog business, you will need to modify it wherever its assumptions deviate from the realities of your business. To see how that’s done, we’ll examine each of the assumptions on which the 1 percent response rule is based:

“Average-size catalog.” This means generally between 24 and 32 pages. If your page count is much less (such as the 12- or 16-page catalogs that startups sometimes launch), your response rate from response lists will be lower—not vastly lower, but lower. And conversely, if your page count is higher, your response rates will be somewhat higher—not vastly higher, but somewhat.

“Merchandise of average desirability.” If you’re selling merchandise that is very hot at the moment (like Ty Beanie Babies), your response rates will be higher—as long as the unusual popularity lasts.

And conversely, it’s quite easy (especially for start-ups) to misjudge the desirability of their merchandise and to launch a catalog filled with less desirable merchandise. In that case, your response rates can be much less than 1 percent ... all the way down to near zero. Generally though, most catalogs (at least after the first year or two) are stocked with “merchandise of average desirability.”

“Average value price points.” Nothing can depress your response faster than overpricing your merchandise, particularly if you overprice significantly. Yet many catalogers resist, preferring to believe that attractive photos, compelling design and persuasive copy will overcome high price points. But I rarely find that to be so.

The key factor, of course, is “value,” not absolute price point. For example, a price point of $100 might represent a tremendous value (a women’s silk suit), or an extremely poor value (a box of cookies). To earn a 1 percent response, your price points must represent average good value for your merchandise. Otherwise, you’ll need to adjust the rule upwards (higher response rates for extremely good value pricing) or downwards (lower response rates for unusually poor value pricing).

“Average selection of response lists.” All bets are off if you don’t do a reasonable job of list selection. You can easily get a 0 percent response if you select lists unwisely. Additionally, the 1 percent rule is based on response lists, meaning the buyer files of other catalogers. If you’re mailing compiled lists (names collected from surveys, census data, warranty cards, etc.), then your response rates in general will be lower (up to 50 percent lower). If you’re mailing publication subscriber lists, your response rates may be even lower still.

When should you completely ignore the 1 percent rule?

The 1 percent response rule applies only to prospect mailings. Different rules apply for house lists. And the 1 percent response rule also doesn’t apply when you’re mailing to lists that you already own, but which don’t have anything to do with your catalog operation. This often comes up when an existing business has decided to add a catalog to their existing mix of marketing channels. They typically will have several random mailing lists already in house (warranty-card respondents, buyers from other marketing channels, gift recipients, etc.), and the question always arises, “What response can we expect if we mail to these other lists that we already own?” And the answer is, nobody can even guess. For such mailings I’ve seen everything from 0.01 percent up to 5 percent or better. All you can do is test and find out.

Does the 1 percent rule affect more than just response rates?

Actually, the 1 percent response rule is why list rentals have a 5,000-name minimum. This large minimum often frustrates start-up catalogers, who always ask, “Why must I rent so many names, when I could tell if a list is good or bad by mailing just 1,000 or so?”

And the answer is, if you mail 5,000 names and get a 1 percent response, that means you’ll receive 50 orders, and statisticians have mathematically determined that 50 responses is the minimum number of responses needed to make results “statistically significant.”

And surprisingly, it actually works this way in the real world. One of my clients recently decided to rent 5,000 names from each of several lists, but he mailed only 1,000 from each list in the first mailing, on the theory that he would then use the results of that first mailing to identify the best lists, and then for the second mailing, he would mail the remaining 4,000 names from just the better lists. An interesting strategy—but it didn’t work. Results of the first mailing showed clear winners and losers—but those results weren’t statistically significant (since he received fewer than 50 orders from each list), and the response rates of the second mailing showed no relationship to the early-mailing results.

How can I use the 1 percent response rule to improve my catalog’s results?

This is the heart of the matter—how to use the 1 percent response rule to improve your cataloging results. The techniques vary depending on how you’re involved in cataloging.

If you’re launching a startup, plug in a 1 percent response rate for your prospect mailings and see what happens to the rest of your projections. Does the resulting bottom line look too awful? Then you need to rethink other parts of your program. Are your projected costs too high? Is your cost of goods excessively high? What changes in pricing, merchandising and catalog presentation can you make that will make your catalog more-than-typically appealing to prospects? This is the hard work of cataloging, and the 1 percent response rule is a good tool for forcing start-up catalogers to face the stern realities of catalog marketing.

If you’re seeking financial backing for your catalog, and if your actual prospecting response rates are below 1 percent, decide on a response now, before you make your official presentations. If you can’t do anything about your low response rate, at least realize that you’ll need to emphasize other, more positive numbers in your business plan. And conversely, if you’re beating 1 percent in your prospecting results, make sure your banker or venture capitalist knows all about it.

If you’re a venture capitalist or a loan officer considering investing in a catalog, you should compare the catalog’s prospecting results with the 1 percent rule. If they’re beating it, try to understand why—is it a transient effect, or something you can count on? And if results are less than 1 percent, that’s a red flag to investigate. There are many good reasons why prospecting results may legitimately be under 1 percent (for example, they’re mailing a very small catalog)—just be sure you understand why you’re seeing response under 1 percent before you invest money in this catalog.

If you’re already a successful cataloger, the 1 percent response rule can help improve your business in two different ways:

A) If your sales reports consistently show sub-1 percent response rates on prospecting mailings, it’s time to sit back and take a long hard look at why. As an experienced cataloger, you’re aware that few catalogers can break even on the first sale to a rented name—costs are too high and response rates are too low. But an average response under 1 percent on prospect mailings is too low, and deserves closer examination.

For example, a frequent cause of prospecting response rates under 1 percent is lack of clarity in catalog design, copy and merchandise. As catalog glut becomes more and more widespread, prospects are spending less and less time with each catalog they receive. If you’re sending your prospects the same catalog that you’re sending to your house list, chances are that your catalog isn’t clear enough for new prospects. Long-time catalogers often fall into the trap of targeting prior buyers, who already understand the fundamentals of your offer and forgetting that prospects may be confused about who you even are or why they should want your products. The solution may be a special prospecting catalog, with special aids for prospects, or it may be better clarity in your main catalog (which will boost response rates from you house file too).

B) If you’re a successful cataloger and your prospecting response rates are well above 1 percent, take a close look at how far above 1 percent you are, and compare that with where you should be. Are you mailing a 96-page catalog filled with high-value, highly desirable merchandise to extremely well-targeted lists? Then you should be doing a lot better than 1 percent—make sure that you are.

And that concludes our examination of rule of thumb #1: the 1 percent response rate. Next time, we’ll examine a different cataloging rule of thumb. Until then, best of luck with your cataloging success.

Six Ways Rules To Improve Results

Here are the six basic ways that catalogers use rules of thumb to improve their cataloging results:

1. If you’re launching a startup, rules of thumb can keep your business plans realistic and help avoid financial disaster. A typical start-up procedure—starting with a desired bottom line profit, then working backward to the needed response rates and order sizes—almost certainly yields unrealistic spreadsheets. Rules of thumb can set it right.

2. If you’re seeking financial backing for your catalog, rules of thumb can help you identify problem areas to fix first. If your banker or venture capitalist questions something in your plan, and you can point to an industry-wide rule of thumb for your authority, chances are good you’ll win the point.

3. If you’re thinking of making a loan or providing venture capital to a catalog company, rules of thumb can help you quickly determine if the catalog business in question is realistically grounded. For most bankers or loan officers, rules of thumb can help offset any lack of experience in cataloging.

4. If you’re considering buying an existing catalog, rules of thumb may help determine if you’re looking at an opportunity or a problem. If you’re not already familiar with the catalog industry, rules of thumb are doubly important because catalogs operate very differently from other businesses. If you’re new to the business and try to evaluate a catalog using only your non-cataloging business intuitions and skills, you’ll make many errors.

5. If you’re already a successful cataloger, rules can help you in two ways. First, rules can identify trouble spots where your numbers are worse than the average. Second, if you have no real trouble spots, rules of thumb can help identify the most promising areas to focus on. For example, if an analysis of your operation shows that you’re already well above average in response rates, average order size and sales per book, but your cost to take and fulfill an order is only average, then your quest for excellence should start there.

6. If you’re considering adding a catalog to supplement other marketing channels, rules of thumb can help you evaluate whether this is a good idea. Many non-catalogers are launching catalogs these days, and they often make the mistake of planning their new catalog branch by following the rules of their old business. In other words, they apply the wrong rules of thumb!

Susan McIntyre is president of McIntyre Direct, a catalog consulting company based in Portland, OR. Author of the regular column “Cataloging Rules of Thumb,” she can be reached at (503) 735-9515.

Why 1 percent?

If you mail 5,000 names and get a 1-percent response, that means you’ll receive 50 orders, and statisticians have mathematically determined that 50 responses is the minimum number of responses needed to make our results “statistically significant.”