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Catalog Square Inch Profitability Analysis
Performing product/space allocation analysis to find out what's producing in the catalog and what products are paying for their space and what products aren't. This analysis gives you the information you need to reallocate space in the catalog to those products that are performing...meeting revenue and profit goals...allowing you to optimize individual product and overall catalog sales. This type of analysis is called "square inch" analysis or "squinch." The mechanics of square inch analysis follow this process using a spreadsheet or database:
- Measure how much space each product takes up on each page including both image and text.
- Measure all editorial and white space so every inch of space on page is accounted for. Then weighted back this space to each product and the total is entered into one column on a spreadsheet.
- Place the sales for each product into another column.
- Calculate the sales per square inch by dividing each product's sales by the space it takes on the page.
- Add an index column and divide the sales per inch of each product by the average sales per inch for the whole catalog.
You will also need to include columns for units sold, profit per item, profit per inch, total advertising cost, and advertising cost per inch, item number and product description.
An index of 1.00 indicates the item is performing equal to the average; whereas, results greater than or less than 1.00 indicate the item is performing better than or less than average, respectively. This provides a gauge of the relative strengths of each product.
You want to compare the sales per inch for each product to the book average and to breakeven for that product. Products performing better than the average should be given more space in the next catalog. Those performing below the average should be given less space or eliminated altogether.
An industry rule of thumb is to give more space and improve the presentation of the top third of the products and eliminate the bottom third. Those in the middle third should be examined individually for either receiving more or less space.
In addition to the revenue performance, you also can look at profit performance using the same approach and develop a similar index based on profit contribution by dividing the profit for each by the average profit for each product in the catalog.
You will also want to make sure that each product achieves or exceeds its breakeven, which means that the margin dollars generated exceed the advertising cost for the space. If a product doesn't achieve its breakeven it should be dropped from the catalog.
Direct To Consumer marketers can't afford to sell products in a catalog that don't achieve their breakeven. To use our tool to help conduct breakeven and profitability square inch analysis, click the bottom below.
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