Prepare For the Postal Hike

When postage rates increase, catalogers really feel the pinch. For example, in January of this year, we experienced a 5.4 percent rate hike. This was the first rate increase since June 2002 (which, at the time, was the third increase in two years). Brace yourself for yet another increase in 2007. What’s more, rumor has it the U.S. Postal Service wants to increase rates again in 2008, which would make three rate hikes in three years.

These increases could be steep enough to push some smaller catalogers over the edge. They could mean the difference between profit and loss on an income statement. (See the chart “Direct Selling Expenses to Net Sales Ratio.”) What can you do about these increases? Despite all the lobbying from trade associations, you can’t stop the increases from happening. But you can attempt to minimize the pain by adjusting your business strategy and taking advantage of the
discounts offered by the USPS.

Sometime in 2007, probably in April or May, Standard mail rates likely will increase approximately 9 percent. Today, a catalog that weighs 3.3 ounces or less goes in the mail at the three-/five-digit rate of $275/M. The USPS plans to split the three-/five-digit classification into two separate classes, i.e., five-digit and three-digit. The five-digit rate is expected to be $300/M, a 7 percent jump. The three-digit rate is going to $328/M, or a 19 percent increase. If we assume a 50-50 split on the three-digit vs. five-digit rates (112,500 copies of each class in a mailing of 225,000 catalogs) the “blended” rate of the rate increase, taking these two classes into consideration, is approximately 14 percent. The carrier route rate is $204/M, which will rise to $233/M, a 14 percent increase.

Although the blended rate increase of these subclasses is approximately 14 percent, the USPS is offering discounts or incentives that could impact the large increases. Today, for example, the discount to send a catalog to a bulk mail center is $22/M and to a sectional center facility is $27/M. Under the new rate plan, the discount to mail to a bulk mail center is expected to increase to $28/M, and to $34/M to a sectional center facility. This makes the effective rate increase for a carrier route
catalog 11 percent and 12 percent for catalogs mailing at the three-/five-digit level.

So, what can you do? Consider these ideas:

u Look for co-
mailing opportunities from your printer.
Co-mailing is the process of combining different catalog titles into one mailstream to generate more carrier route discount mail. There’s going to be more pressure on printers to do this. A printer’s ability to co-mail and distribute catalogs is as important as its ability to put ink on paper. The advantages:

3 Postal savings. This is due to better presort levels and possibly better drop-ship discounts. More mail will qualify at the
carrier route level.

3 Better deliverability. More carrier route or five-digit pallets will enable catalogs to penetrate the postal system deeper, which could generate additional savings by going to more sectional center facilities. This will increase production flow through the postal system.

u Test, test, test. This includes testing lighter-weight papers and using a self-cover vs. a heavier separate cover. A move to a slightly lighter basis weight paper should have no impact on results. Paper is sold by the pound, and if you use fewer pounds, you may save money. You’ll save money on postage using lighter-weight paper for sure, provided your catalog mails at the pound rate. A simple change from a 34 lb, No. 5 basis weight to a 32 lb, No. 5 basis weight will save approximately $13,000 in postage mailing 1 million 80-page catalogs (at today’s postage rates). (Refer to the chart “Paper Test: 34 lb vs. 32 lb” for the results from our recent test.)

u Use a lower paper grade. Changing paper grades can have an effect similar to changing the paper’s basis weight. Just be careful not to go to extremes. Test a No. 5 grade, for example, against a No. 4 or No. 3 grade. Unless your offer is extremely upscale, a slight reduction in the grade of paper you use can reduce your direct selling expenses and ratio.

u Drop non-codeable records. If you say you’ll be dropping non-codeable records with your list order as a requirement, you can deduct these names from the list-rental invoice. Non-codeable records don’t qualify for postal discounts and are generally less deliverable and therefore, less responsive. Also, make sure your list rentals and, of course, housefile, have been put through the USPS’ National Change of Address system recently. If you do any split tests, look at the net benefit of selective binding to keep the mailing in one ZIP stream to maximize your postal discount as opposed to separate ZIP streams, which is more costly (generally at quantities of 300,000 or more, it’s more cost efficient to selective bind). Ask your service bureau to give you the postage estimates both ways (one ZIP stream vs. two ZIP streams) to be sure where the cutoff is. If the postage savings outweigh the price of selective binding, go with selective binding.

u Add names to receive a discount. “Add-a-name” is when you add one or two records to a carrier route in order to qualify for a discount where you previously were short of the 10 per-carrier route requirement. Often, if you have a pool of records to draw from that are close or at breakeven, the records added bring your postal cost down, and the net gain is positive. If you use inactive buyers or modeled names from a cooperative database, it’s usually worth it. Keep in mind that the number of add-a-name pieces added will be a function of how many pieces are mailed and the geographical distribution of the mailing. For most mailers, a national circulation of 700,000 or more is required in order for add-a-name to make economic sense. At that level, generally about 5,000 to 10,000 catalogs will be added.

u Don’t over-circulate. Decide your “new” incremental break-even point, and eliminate mailings to outside lists and to segments of your housefile falling below your established criteria.

u Reduce catalog trim size. If you have a pound rate catalog (that weighs 3.3 ounces or more), a slight reduction in the physical trim size will reduce your postage and paper costs. A reduction of a half-inch vertically on an 80-page catalog can save $15,000 on the paper and postage costs per 1 million copies printed. (Note: This assumes no change in the weight requirement.)

These USPS rate increases are serious. They pose a real threat to catalog businesses. Now is the time to push your printer for co-mailing opportunities. If you’re with a printer that’s not proactive in this area, find a new printer. n

Stephen R. Lett is president of Lett Direct. Reach him at (302) 537-
0375 or via his Web site: www.lett
direct.com.