DM Profitability Growth Despite Revenue Decline

October 1, 2008

This article is included in these additional categories:

Email | Paid Search | Retail & E-Commerce

Direct-marketing business performance in the second quarter declined overall from the year-earlier quarter, despite growth in profitability, according to the Q2 Quarterly Business Review (QBR) issued by the Direct Marketing Association (DMA), reports Retailer Daily.

The QBR Revenue Index vs. same quarter last year (SQLY) for Q2 was 47 – a one point decline from Q1’s 48.


In the QBR Index, scores below 50 represent a decline in direct marketing business performance during the quarter versus the SQLY; a score of 50 represents no change; and scores above 50 represent growth.

QBR estimates that direct marketers’ aggregate revenues declined approximately 3.6% on a weighted basis (a measure that adjusts for the size of direct marketing firms responding to the survey) – that’s unchanged from Q1.

Despite the Q2 soft revenue performance, overall profitability remained robust at 63, with each of the three segments that QBR benchmarks (marketers, agencies, and suppliers) posting an index in the low 60s or better.


“Overall, results show that weak economic conditions during the second quarter of 2008 caused direct marketers to experience softer revenues relative to the same quarter one year earlier,” said Anne B. Frankel, senior research manager. “While the Revenue vs. SQLY measure was negative, it is encouraging that the Profitability results were positive.”

Below, QBR highlights for the second quarter of 2008.

Direct Marketing Community: Overview

The Agency segment had the best performance on the Revenue vs. SQLY metric, with an index of 51; Marketer and Supplier performance was softer than a year ago, with indices of 46 and 44, respectively.

Projected revenue for Q3 points to modest growth, with an overall index of 52, down three points from the 55 posted for Q2 and down five points from the 57 for Q1.

With an index of 60, Agencies are the most optimistic about revenue growth in Q3, followed by Suppliers (51 index); Marketers anticipate a small decrease in their next quarter revenue (48 index).

Issues of Concern to Marketers

“General Economic Conditions” is again in first place overall as the factor most likely to affect revenue for Q3, with 60% mentioning it – up from 56% for Q2 and 51% for Q1 2008.


“[M]onetary investments in direct marketing will continue despite the slowdown in certain sectors of the economy, as Marketers intend to increase spending in areas such as Email, Websites, and Search,” Frankel said.

Two-thirds of Marketers feel that a recession is somewhat (34%) or very likely (35%) in the next 12 months:

  • In case of a recession, Marketers are most likely to keep their marketing budget the same but reallocate expenses (44%).
  • Marketers expect to increase spending in key areas in the event of a recession, notably in online and analytics.

QBR Highlights: Direct Marketers

  • Q2’s Revenue vs. SQLY index of 46 has stayed constant from Q1.
  • Profitability increased by two points to 63 from Q1’s 61.
  • Also unchanged from Q1, the weighted average revenue change (the measure that is more reflective of the direct marketing community in aggregate) for Q2 was -3.6%.
  • Marketers’ revenue projections for Q3 entered negative territory, dropping by six points from Q2, to 48.
  • Marketers indicated that their average spending to “Acquire a New Customer” (58 index) and to “Retain a Customer” (55 index) grew relative to the same period just one year earlier.
  • Spending on online channels continued to grow more quickly than on offline channels, as Marketers most often increased expenditures on Email, New Media, and Search (indices of 65, 63, and 61, respectively).

QBR Highlights: DM Agencies

  • Revenue vs. SQLY was 51, representing a one-point gain from Q1’s 50.
  • Profitability remained strong with an index of 65.
  • Agencies remain optimistic for Q3, with a forecast of 60 that reflects expectations of growth in revenue.

QBR Highlights: DM Suppliers

  • Revenue vs. SQLY registered a decline in Q2, dropping three points to 44 from Q1’s 47.
  • Profitability remained positive at 61, matching Q1’s index.
  • Revenue is expected to grow modestly in Q3, with a Projected Revenue index of 51, which is a more conservative expectation than in previous quarters.

DM Breakout: B2B Segment

  • The Revenue vs. SQLY index gained two points from Q1, to 46.
  • Profitability remained strong in Q2, with an index of 64.
  • In Q2, the weighted average revenue change for B2B was -5.2%. This segment experienced a larger overall weighted revenue decline partly because companies in the largest revenue tiers experience larger decreases, on average.
  • B2B Marketers anticipate a softening in revenue in Q3, with a projected revenue index of 47.

DM Breakout: B2C Segment

  • Consumer Marketers posted a Revenue vs. SQLY index of 46, on par with the index recorded for Q1.
  • Profitability stayed strong in Q2, with an index of 61.
  • In Q2, the weighted average revenue change was -2.8% for the B2C segment.
  • B2C Marketers anticipate a small drop in revenue in Q3, with a projected revenue index of 48.

DM Breakout: Catalog Segment

  • The Revenue vs. SQLY index for Catalog Marketers was 44, marking a decline in revenue compared with the same quarter in 2007.
  • Profitability was robust in Q2, with an index of 66.
  • In Q2, the weighted average revenue change was -6.3% for the Catalog segment.
  • Catalogers anticipate a decline in revenue in Q3, with a projected revenue index of 45.

About the study: DMA’s Quarterly Business Review (QBR) for the second quarter of 2008 is based on three online surveys of marketer, agency, and supplier companies. The surveys were conducted by DMA’s Research and Market Intelligence department from July 16, 2008 through August 1, 2008. In total, DMA received 294 survey responses.

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