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FEATURE STORY

Postal Increases and Your Small Business

In one of the most radical pricing classifications in U.S. Postal Service history, the cost of First Class Flat Rate postage, equaling one ounce or less, rose two cents per piece from 39 cents to 41 cents and even more shocking was the 20 to 40% increase in Standard Mail Flat postage, including periodicals and catalogs, affecting hundreds of direct mail catalogers nationwide. The new rate affects all aspects of both personal and business mailing leaving many executives to cut budgets and shift marketing tactics in an already tight economy.

 A New Approach to Postage

The new pricing system is based not only on the weight of the mail, but on the shape reflecting the cost for handling letters, large envelopes and packages. The downside to the increase is higher costs for business mailers large and small. For example, a company that currently spends $5,000 per month on postage, or $60,000 per year, will pay nearly $3,240 more annually with the new rates – but only if operations continue in a “business as usual” mode. The upside is that the new rates encourage mailing efficiencies and help to cover the increasing costs of handling bulky mail that isn’t ‘machinable’.

But is the rate increase reasonable? Proponents of the increase in Washington say it will help maintain affordable universal physical mail service while encouraging the United States Postal Service (USPS) to embrace new technology to improve efficiencies.

Small business owners, catalogers and industry lobbyists are demanding that the Postal Regulatory Commission (PRC) revisit the increase, especially the areas concerning Standard Flat rates which apply to catalogs effective July 14, 2007 . While First-Class Mail letters were only affected two cents per piece, catalogers are realizing staggering increases of 20-40% per catalog. The Governors of the USPS have requested reconsideration of three areas approved by the PRC’s rate recommendation for the Priority Mail Flat-Rate Box ($8.95), the Non-Machinable Surcharge for First-Class Mail letters, and the Standard Mail Flats. The Governors are concerned that the increases recommended by the PRC impose an unnecessarily high ‘rate shock’ on the catalog industry and small business.

A little history on why postage rates keep rising

The United States Postal Service first began moving the mail on July 26, 1775 , when the Second Continental Congress named Benjamin Franklin as the nation's first Postmaster General. George Washington’s original vision of maintaining a free-flowing channel of communication between citizens and their government became a reality via the development of a postal service and a system of roads and post offices through which these letters and packages could travel.

The Postal Act of 1792 further defined the role of the Postal Service. Under the act, newspapers were allowed in the mails at low rates to promote the spread of information across the states. To ensure the sanctity and privacy of the mails, postal officials were forbidden to open any letters in their charge unless they were undeliverable.

Today, the USPS handles over 200 billion pieces of mail each day, roughly translating to five pieces per household per day. The organization is a mandated semi-federal agency that is ‘revenue-neutral’, meaning organized to break even. The USPS rides a fine line between being a private company working under close Federal scrutiny and control. In legislation enacted in 2003 and effective starting in 2006, the USPS was also given a new financial directive requiring the agency to put nearly $3 billion into escrow each year as way to safeguard its assets and ensure that the agency remain out of debt. Among factors justifying the proposed postage rate increase, USPS cited increasing costs for fuel and employee health care. In 2005, the cost of providing health insurance to the more than 621,000 current employees and 445,000 retirees of the U.S. Postal Service hit a total of $6.6 billion.

According to Stephanie Hendrichs, director of public relations for the Direct Marketing Association, a leading global association of business and non profit organizations using supporting direct marketing tools and techniques, what happened with this increase is a little different than in previous rate change requests. “We’re seeing such a spike in rates partially due to the new postal legislation that went into effect in December of 2006,” she said. Under the new process, which goes into effect in the summer of 2008, future postal increases will be tied to the consumer price index. This means that large price shifts like the most recent one on May 14 th will become a thing of the past. “Because the hearing process is so lengthy, this increase was probably the PRC’s last opportunity to make a substantial pricing increase before the new legislation takes effect,” continued Hendrichs.

USPS -- One Big and Busy Outfit
Today, the U.S. Postal Service:

• Delivered mail to 134 million delivery addresses, including 20 million post office boxes. About 1 million new addresses are added each year.
• Carried more mail to more people over a larger geographic area than any other country
• Served 7 million customers daily at one of 38,000 postal retail outlets
• Employed 750,000 career mail carriers, including 235,985 veterans and 47,937 employees with disabilities
• Leased more than 27,000 facilities at a cost of $727 million a year, providing tax revenue to thousands of communities
• Paid $1.6 billion in employee salaries and benefits every two weeks

(source: USPS)

The PRC’s recommended increase for some catalog mailers is as much as 40 percent, which is more than double what the Postal Service had proposed. Unlike changes to first class postage, catalog rates soared to nearly four times their original rate. “It’s a big hit for catalogers,” says Hendrichs. “Businesses that had set their 2007 budgets anticipating a 9-12% increase were shocked when the PRC returned an increase of 20-40% on standard mail flats including catalogs. We’re going to see major shifts in how these catalogers do business and substantial budget cuts to accommodate these increases.”

The large rate hike is also a double-edged sword for the USPS. If the PRC returns with an affirmative decision on the Standard Flats rate, catalogers will be forced to cut spending on direct mail causing a decrease in USPS sales projections. With Standard Mail accounting for 28.7 percent, or more than one-quarter of the total USPS budget annually, a sharp reduction in catalogs could have a serious impact on the USPS’ bottom line.

 What about non profits?

When it comes to direct mail, non profits face the same issues that business marketers face. The non profit discount is based on current postal rates but what makes non profit mailing different is their approach. Many non profits’ direct mail pieces fall into a category called Not Flat Machinable (NFM). These are mailings that use marketing promotional tools like magnets, pins, and personalized address labels to gain attention and response. These promotional items are bulky and don’t go through the sorting machine like traditional business mail requiring additional handling by the post office staff. Non profits and business who use this technique are feeling the rate increase much more than traditional mailers and have requested additional time to implement the changes. Unfortunately, the USPS and the PRC have not been very positive on their requests.

“Most businesses using catalogs as a tactic will have to cut their scheduled mailings in order to meet budgets,” continues Hendrichs. “We’ve received over 500 letters from catalogers who are afraid of how this increase will affect their business.” But there are things that business can do, warns Hendrichs. “The legislation encourages us to be more efficient and to use the mail system wisely.”

Tips for Small Business

1. Take advantage of postage discounts. Consider outsourcing your mail preparation to a mail house that can presort (zip+five) your data. This will give the greatest postage discount and help to ensure that your addresses reach their destination.

2. Buy Forever stamps. These stamps can be purchased at the new postal rate of 41 cents each and will remain valid forever. It has been reported that an individual purchased $8,000 worth of Forever stamps on the stamps’ issue date of May 14, 2007 . The USPS has its fingers crossed in the hopes that substantial cash purchases like this one become a trend.

• Design new mail pieces for efficiency. Newsletters should be folded to fit into a business envelope to qualify for the lower 41 cent rate. For example, if the contents of a First Class Mail large envelope are folded and placed in a letter-size envelope, customers can reduce postage by as much as 39 cents per piece.
• Where you drop your mail matters. If you are doing a large national mailing break up the mail drop by region and drop-ship it at major postal hubs to reduce costs. The closer you can get your mail to its final destination before placing it into the postal system, the lower your rate will be.
• If your business uses a catalog – design it smarter. Catalogs are an important driver of web traffic and can be used to showcase a brand. Design the catalog to highlight what’s offered and point consumers to the web for additional products. Make the page layouts more engaging, vibrant and interesting and reduce what’s included in the catalog opting for a full listing on the web site. These changes will help to reduce the weight of the catalog and ultimately, the printing and postal costs.
• Use a multi-channel marketing approach. Don’t put all of your marketing eggs into one basket, but rather spread out your effort to cover multiple ‘channels’ or tactics. This strategy will protect the business from large pricing shifts as well as allowing you to take advantage of any new marketing trends.
• Find your voice . Join industry trade associations and/or the Direct Marketing Association to help understand the issues, policies and changes as they are implemented. As a single business person, often your voice cannot be heard, but as part of a larger organization, great change can occur.

Rising postal costs don’t mean that you need to stop the presses on your next direct mail run. Rather, think competitively and develop new strategies always planning for resiliency. To learn more about developing a creative marketing strategy in tight economic times, talk with a Fidicual Advisor by calling 866-FIDUCIAL or visit the web site at www.Fiducial.com.