Paralysis through analysis - magazine circulation

It's been said that you can prove anything you want to prove in the consumer magazine circulation business. There are so many variables, so many numbers to analyze, that simply by changing a few assumptions here and there, you can create any analysis to prove your point.

Circulation is a computer nerd's heaven. What is that pay-up percentage on the third bill? How many people renew before expire - and on how many efforts? What does adding an additional blow-in do to my overall return percentage? What will a change in offer price do to my direct-mail-agent volume?

Assumptions built upon assumptions, endless computer-model runs - circulation directors are all guilty of hiding behind the "mystique" of circulation. In so doing, they frequently convince themselves that decision-making is dangerous to their health. In circulation, it is always possible to talk yourself out of taking almost any risk. Enough empirical "evidence" is always available to justify not taking any action. The more you know, the more you worry about what you don't know. The thought of taking a calculated risk (to raise a price. to change an offer) becomes frightening. What is my downside? Will I miss my ratebase? Will I lose my job? The inability to make decisions - paralysis through analysis - is a common malady of circulation directors.

The numbers that count

So what's the cure? For starters, it helps to recognize that there are just too many numbers to be able to deal intelligently with all the information at once. But some of the numbers are a lot more important than others. For most magazines, the important variables are usually the same. Here are five you should focus on:

Subscription term sold: The length of term of your subscription offers is the critical variable in determining how much new business you have to sell every, year to support your ratebase. Shorter term means more file "churn," and therefore more need to generate new business. This, in turn, means more new-business costs and a poorer circulation P&L.

Monitor the average term sold by source for every new and renewal subscription you sell. Do anything you can to lengthen that term. Not only will your new-business costs go down as term goes up, but a subscription sold with a longer term win also renew better. Circulation P&Ls rise and fall in direct proportion to how much annual new business a magazine must sell to replace subscribers who haven't renewed. The most money is spent on new business acquisition - and most of that on the last few thousand subs required to support a ratebase. Adding just two months of term to the average subscription for a monthly magazine can have a dramatic impact.

New business front-end response: If you can't get the front-end response up, it doesn't matter how good your pay-up is. This applies to all sources, from direct mail to television. Concentrate your promotional energies on producing the biggest front-end lift you can. Then, figure out how to get those people to pay a bill. Frequently, the key to gross response is not a free issue, sweepstakes and/or premium; it may be a lower dollar amount with a hard offer. Or, best of all, a longer-term hard offer at a lower per-copy price.

Test it. Often, you can improve your front-end response by spending more on new-business promotion, not less. Instead of saving money with that double postcard, try to drive up front-end response with a more elaborate package.

Insert-card returns: Many times, the best indicator of the relative health of your magazine is the return percentage rate on bind-ins and blow-ins. You will typically see a higher figure on issues with above-average newsstand sale - because the issue is better read and the insert cards are used by more pass-along readers.

Strong insert-card response rates also provide you with the first indication that a price increase may be in order. And the insert card itself is the best place to test offers and prices. When the falloff to a higher price test is minimal, don't wait - raise the price and/or term of the offer.

Agent/direct source mix: Chart your direct-to-publisher versus your agent new-business source mix year to year. Has your P&L been affected by any dramatic source shifts? Weigh the impact of alternatives. What will longer-term, field-sold business do to your new-business requirement? If you rely more on direct-mail agents, renewals may suffer in the future. You need to determine if short-term savings on new-business costs will offset any future renewal losses.

A circulation P&L tends to be driven by the outlandish losses piled up by new-business direct mail. Source evaluation may tell you that it will take five years or more to make some portions of your new-business mail profitable. None of us can afford to wait that long. That's why longer-term, agent-sold business has benefits even if it sometimes renews poorly.

Advertising revenue/circulation revenue: Is your magazine driven by circulation or ad revenue? The answer should shape your circulation strategy. In an ad-driven environment, circulation acquisition costs are less important than increasing the number of subscriptions sold. The reverse is true at a circulation-driven magazine. Strategies can change over time. Be sure to understand the circulation/advertising dynamics of your magazine, and then plan and execute your circulation strategy accordingly.

No rocket science required

To understand these five leverage points is to manage your business profitably. All the planning in the world will not improve your circulation profit if you are spending your time worrying about the wrong things. The circulation director who agonizes over editing promotional copy, or analyzing the effectiveness of the seventh billing effort, or negotiating a 2 percent better remit from a subscription agent is wasting his or her time.

You must walk a fine line between hunch and reality. You must be willing to take calculated risks and, above all, be opportunistic. Circulation is the management of a constantly changing set of daily options. It is not nuclear science - even though some circulation directors would have you believe that it is. Circulation is a sales function, and there isn't a computer in the world that will replace a good salesperson. Keep it simple.

E. Daniel Capell is managing director of Vos, Gruppo & Capell, an investment banking firm in New York City. He is also editor of "Capell's Circulation Report."

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