When it comes to information technology, what are catalog companies spending and why? On average, IT costs typically represent 1.80 to 2.2 percent of net sales for catalogs, according to new industry benchmarks revealed by F. Curtis Barry & Co.
These data provide a good base to measure your IT expenses against – in terms of efficiency, application development and technology. For example, you can determine:
Answering these questions can give you an idea of where you should be making your next IT investment.
F. Curtis Barry & Company’s Information Technology ShareGroup studies show that IT departments in 22 catalogs with combined sales of $5.4 billion revealed that these catalogs had a total 47 million orders with combined IT expenses of $97 million. The expenses were compared on a blind basis between companies for major expense categories, including management, labor, hardware/software, services, telecom and facilities, among others.
The overall results of the 2003 F. Curtis Barry & Co. benchmarking study were as follows:
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Total IT Costs as % Net Sales (in millions)
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| By Sales Range | $5-$50 mill Net Sales |
$51-$125 mill Net Sales |
>$150 mill Net Sales |
| # of Companies | 9 | 4 | 9 |
| % Net Sales Range | 0.78 % - 4.84 % | 0.84 % - 3.04 % | 0.94 % - 3.39 % |
| Avg. % Net Sales | 2.19 % | 1.84 % | 1.79 % |
The figures do not include Internet IT expenses, which can vary widely depending on whether a catalog includes Web marketing as well as other ‘Internet IT costs in the total. In this study, Internet IT costs ranged from 0.1 percent to 0.88 percent of net sales, and were excluded from the IT totals for ease of comparison. We also excluded telephone systems depreciation costs if they were included in the IT budget.
In looking at IT cost averages, be careful about how you view comparisons to net sales. Smaller catalog firms tended to have a higher fixed cost in proportion to provide comparable functions. While the largest budget belonged to a $1.4 billion cataloger who reports spending close to $30 million on IT, or a total of 1.99 percent of its net sales, interestingly, the most aggressive IT spending in terms of percent of sales came from companies of all sizes—not just the biggest catalogers.
Also, the smaller ($50 million and under) catalogers in the group had the greatest discrepancy in overall IT spending levels—a range from less than a percent to close to 5 percent. This perhaps demonstrates that some smaller catalogers are, on a percentage-basis, spending more currently due to ramping up their IT departments while other smaller catalogers may be marginally investing in IT systems.
A careful review of your own IT expenses against this study of catalog industry IT benchmarks gives you a unique ability to get behind the numbers. By first defining your own company’s IT expenses and then comparing notes, you can see where you stack up among other similar catalog companies in the business.
| IT Cost Breakdown by Category (% to total IT costs-weighted average) |
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| Labor (includes benefits) | 50.37% |
| - programming | (28.35%) |
| - ops/tech support | (17.17%) |
| - other | (4.85%) |
| Hardware | 13.22% |
| Software | 10.10% |
| Services | 4.90% |
| Telecom | 3.90% |
| Facilities | 2.76% |
| Supplies | 2.42% |
| Training | 1.07% |
| Archived Storage | 0.69% |
| Travel | 0.69% |
| Other Costs | 19.33% |
For example, it’s very important to realize that 50 percent of IT costs are labor (including programming, operations and tech support). Of course, committing to IT as part of your competitive strategy requires the staff to back it up. Small- to mid-sized catalogs, with sales in the $5 million to $50 million range averaged only 5 full-time employees, or the equivalent thereof. But the larger companies—those whose sales topped $150 million up to over $1 billion in sales, had the equivalent of between 21 full-time IT staff to 200-plus employees working in internal IT departments!
A related issue catalogers need to examine closely is in-house vs. outside systems development. More companies are developing at least some of their own IT systems in-house, according to our study, which showed 17 out of the 22 companies to be developers, with only five companies not developing their own IT (and even two of those five have their own programmers).
Whether it makes sense for your catalog operation to develop its own software and systems really depends on the complexity of your operations and what you’re looking to the IT to accomplish for your business. Most often, we’ll find catalogers using a combination of commercial systems in conjunction with proprietary, custom-developed applications. For catalogers that are non-developers, a key question to ask is, are commercial software vendors providing the needed functionality at a competitive price?
Regardless of whether you’re looking at merely tweaking your current warehouse management system or an overhaul of your entire order management system, every catalog company should be actively engaged in IT planning. Requirements for successful IT planning include assessing what you have, what other industry leaders and competitors have, what you need now and your desires for the future. Only then can you effectively plan and budget for the development of in-house systems--or select and implement the appropriate commercial systems.
‘Big Bang’ Applications
When it comes to investing in information technology, catalog companies must determine their present mode of operation. In other words, when it comes to the technology to operate your business, consider whether you are:
Internet. For many catalogs today, the Internet represents about 20 to 30 percent of their direct sales. But for some catalogers, including six of the 22 we studied, the ‘Net really grown in importance, representing from 40 percent to 70 percent of sales. Some areas worth investing in when it comes to Internet IT include:
Customer Contact Center. Whether on the phone or online, catalogers should be taking advantage of every customer contact to increase average order value, improve customer relations and maximize lifetime value.
Fulfillment/Supply Chain Management. In the warehouse, technology improvements can streamline business processes and improve accuracy and speed of order fulfillment.
Marketing/Creative. There is likely a wealth of actionable information about your customers in your database; the key is having the right systems to unleash it.
Finance. The latest analytical processing tools can provide your catalog’s executive management with the most up-to-date information about operations.