Data Driven : Print Dollars
How to analyze a profit-and-loss statement for your print marketing campaign
July 2011 By Philippe Graner
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What are the key profit-and-loss statement (P&L) components of a print marketing campaign? What can you affect in the short-term to turn around a P&L starting to fall short of forecast? The direct marketing printed campaign P&L statement differs from a traditional business P&L in several ways:
- Its purpose is primarily for direct marketers to measure individual marketing campaigns, as opposed to traditional monthly, quarterly or
annual statements. - It indicates gross merchandise demand in order to quantify returns and cancellations; a key direct
marketing metric. - The application of overhead expenses depends upon the nature of the marketing campaign—be it a mailing to current clients or to potential clients.
Best-in-class marketers build a separate forecast for each print marketing campaign, including inputs for merchandise sales in units and dollars, response rates (RR%), average order value (AOV), sales per mailed piece ($/Book), advertising costs and fulfillment cost per order. All of these variables, including returns and cancellations, are entered in a P&L format. At the end of the marketing campaign cycle, actual results are entered into the P&L. Variations between forecast and actual results are noted and explained.
The following chart shows an example of a print campaign P&L. It assumes that a physical good is being sold. Direct marketers can use the P&L to pinpoint specific issues concerning price points, units per order, margins, advertising costs, sales revenue and overhead.
By analyzing metrics to this detail, direct marketers are able to quickly implement corrective actions to either take advantage of a new market situation or correct an issue.
• Average Unit Price and Average Order Value (AOV): The average unit price is calculated by dividing gross sales by units sold. The chart uses gross sales rather than net sales, because many companies report total units sold before returns and cancellations. AOV is similarly calculated by dividing gross sales by total orders. Increasing AOV is a typical method for direct marketers to quickly bump up revenues if they begin to fall short of forecast.
• Response Rate and Average Units per Order: RR% is another method for direct marketers to rapidly correct a P&L imbalance. It is measured as the number of total orders received divided by the number of total mailed pieces. Current clients will traditionally generate a much higher RR% than prospective clients or former clients. Average units per order is calculated by dividing units sold by total orders.
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