Business Basics for Catalog Retailers
Catalog retailers are in the business of selling products. Their supply is made up of different products that they sell to different customers through retail locations. They have to figure out how many products they will sell, and how much it will cost them per item on a per capita basis. Business Basics for Catalog Retailers explores these hidden costs, product availability issues, and all the factors that can contribute to success or failure.
This guide examines ten factors that influence catalog retail sales. These factors are sometimes hidden and not apparent to the average catalog retailer. But they are very important since they will determine the overall profitability of a particular product or service. Some of these factors include:
These factors have to be considered from before you create your catalog and well into the future, particularly if you're trying to sell a new product for which there is no past selling history. You will also have to monitor your inventory closely so that you can identify any problem areas concerning your sales, returns, and ordering practices before they become serious problems.
The following sections examine each of these ten factors in detail and give specific recommendations on how to handle each one based on business experience.
Catalog retailers typically make money by marking up their products over the wholesale price. The more a catalog retailer can sell a particular product for, the more profit they will make. The specific formula for mark-up depends on how much the catalog retailer can charge per item, how much they pay for the product and how long they expect to hold it before selling it:
For example, if an item costs $10 to buy and you want to sell it for $20, this would mean you are marking up 100%. Since you are selling at double the wholesale price (100% mark-up), this means you will have to sell twice as many items in order to make your money back. This is referred to as the turn (or profit) ratio.
The following are some common mark-up percentages:
Example mark-up: Catalog retailers often like to keep the overhead costs low and purchase their inventory in bulk. So they may choose not to take advantage of large mark-ups like 31% or 35% but instead opt for a 30% mark-up, which they feel more comfortable with. This means that all other factors being equal, you will make twice as much money off a $10 item as you did on a $20 item. The higher your turn (or profit) ratio, the greater your margins for risk or for introducing new products.
Conclusion: Mark-up is one of the most important elements in catalog retailing. It determines the profitability of each product and allows you to make your money back, or even make a profit, on each item.
The number of minutes it takes an average customer to make a decision can be affected by factors such as:
This can also affect how long customers will wait in line before buying an item. This is especially true with catalog items where pick-up is not required. Customers may have different reasons for making a purchase, so it's important that you have adequate inventory levels to meet their needs. It may also mean limiting prices so that more customers are willing to wait in line for less money on average.