Three Years and $3 Million to Break Even

Why does it take so many years to break even with a catalog?

It’s caused by some simple marketing arithmetic, which goes like this: When you launch a new catalog, you have no prior buyers, so each catalog goes to a prospect. A typical prospect response rate to a moderately sized, reasonably targeted catalog is 1 percent (ie., you mail 100 catalogs, you get one order.) A realistic in-the-mail cost for a moderately sized new catalog is $0.50 (creating, printing, mailing). A typical cost-of-goods percentage is 50 percent, a typical average order size might be $75 and a typical cost to take and fulfill an order is $10 (excluding outbound freight). So from each $75 order, you must subtract $50 in catalog costs (that’s the $0.50 cost of each catalog times the 100 total catalogs you must mail to get one order at a 1-percent response rate), plus $37.50 (50 percent of $75) in cost of goods, plus $10 in telemarketing/fulfillment costs. That totals $97.50 in costs, from which we subtract our $75 in revenue, to arrive at a loss of $22.50 on each order.