Postage Due

April 1, 2009       Mark Hrywna      

It helps to be flexible. Not only is that sage advice for life, but it can come in handy when trying to lessen the blow of the increasing postal rates that go into effect May 11.

Flexibility in design has been critical ever since postal reform brought a new pricing system in 2007 and with it the potential for huge increases on mailings that might not bend through sorting machines.

Now, two years after the Non-Flat Machinable (NFM) and Standard parcels were hammered by massive postage hikes, double-digit increases again are expected for those subclasses. Other subclasses also will see an increase though not as significant.

Postage increases are based on the most recent 12-month average of the Consumer Price Index-Urban (CPI-U), which this year was about 3.8 percent. Each class of mail can see price increases as high as an average of 3.8 percent, but can vary within each class.

For organizations that don’t focus as much on premiums, the postal increase could be mitigated by controlling costs and reducing expenses in other parts of the direct mail equation, such as list rental and production materials.

Nonprofits must examine the entire equation — from presort to entry discounts — to maximize postal savings under the new rates, said Senny Boone, senior vice president for corporate and social responsibility at the Direct Marketing Association (DMA). “Every nonprofit mailer really needs to plan ahead for their worst case scenario and have a strategy,” Boone said, looking strategically at different rate categories.

Boone even suggests taking a look at alternative media, given what are expected to be annual increases after postal reform in 2006. “Nonprofits today versus 10 or 15 years ago probably have more channel opportunities than ever before to take a multi-channel marketing strategy,” she said. “It’s not a replacement for postal, but look at telephone or email marketing to bolster mailing strategies.”

Nonprofits might want to search for expenses to cut wherever they can, but Boone warned against completely eliminating an acquisition strategy because of mailing costs. “It might be a situation where you end up cannibalizing your efforts in the future,” she said. “Everyone’s really bearing down, looking at the economy, but certainly you want to press forward on acquisition.”

Orlando, Fla.-based Campus Crusade for Christ International (CCCI) is looking for ways to reduce excessive mail through segmentation analysis rather than just trying to get more asks out. The strategy, however, is based more on donor preference than postal increases, according to Megan Hawkes, CCCI’s executive director, donor marketing. “Online communications are considered as less obtrusive and is seen as better stewardship by donors,” she said. “We are seeking to find balance between multi-channel forms of communication more than ever before, even while that balance itself continues to evolve.” Less mail is a natural outcome of aiming for higher engagement and communicating more effectively on all levels, Hawkes said.

CCCI expects increases in mailing costs because postal is still the lion’s share of its fundraising efforts. “Although paper direct mail, in the industry, continues to be the primary trigger to initiate giving, there is significant data and current information to support an increasing need to utilize multiple channels to engage constituents,” Hawkes said. “Online and emerging technology will play a more significant part in our fundraising activities in the future, in part due to the rising cost of postage and materials,” she said.

Most of the mail by Habitat for Humanity International (HHI) qualifies in the letter category. While that rate increase was among the smaller hikes, it still prompted the nonprofit to take a closer look at its use of First Class mail. “In most cases, I believe the return will still be worth the cost,” said Tim Daugherty, HHI’s senior director of direct marketing. “Any cost increase, postage or otherwise, will make you take a closer look at what segments you are selecting for any particular effort. This postage increase is no different. You just need to keep a keen eye on ROI (return on investment) as you move forward and keep mailing as wisely as possible,” he said.

Baltimore, Md.-based Catholic Relief Services (CRS) doesn’t mail many premiums, but a pin package to its house file was modified to cut expenses. What once was a pin attached to a postcard was transformed into a series of postcards instead, said Director of Annual Giving Jean Simmons. CRS also expects to scale back in other areas, reducing mail volumes by small percentages, but more significantly in First Class mail, she added. CRS typically mailed select high-dollar segments of its annual giving program via First Class but now will mail them Third Class.

To reduce postal costs, nonprofits should find ways to commingle, copalletize and drop-ship flats and letter mail that will subsidize some of the increased cost of premiums, said Judy Costello, director of planning and development at Quadriga Art in Pennsauken, N.J. “Overall, your budget on postage still will take a hit, but not as much,” she said. “I don’t think the answer is to not mail some of these larger premiums, depending on your donor base and demographics, because if it works, it works. It’s just a matter of how much you’re willing to pay,” Costello said.

Craig Irwin, president and founder of Convergence Direct Marketing in Bethesda, Md., foresees changes to a popular fleece blanket package mailed for its veterans’ groups. “It will take another hit, and it’s not going to be a little one,” he said. The firm, founded two years ago, has about seven nonprofit clients and has broadened efforts to mail overseas, in part, because of the postal situation in the United States. “It’s quite onerous on nonprofits,” Irwin said.

The blankets might change in size, Irwin said, or in some other way to keep it in the mail stream, but he also suggested other avenues to pursue savings. “Whenever you have rising costs, you have to seek out better database segmentation strategies,” he said, for a “more acute understanding of your best target audience and lists, so applying the more modern science-based solutions to database management and mining.”

The heavier blanket worked better and it cost a little more, but it was worth it, Costello said, but it might not be anymore. A typical NFM mailing after the new rates go into effect will add on average 40 to 50 cents, according to Costello. “In essence, anything that you’re mailing that’s over three-quarter inches and doesn’t fall into the flat category is really not going to be affordable,” she said.

“We have a lot of plans that we have to alter. Anything that we had planned as a Non-Flat Machinable or parcel, we’re looking at all those mail plans now and figuring what we can put in place to make them more affordable. Which means either changing the premium altogether or altering it to make it smaller or lighter so that we can afford it,” Costello said. She typically estimates about 3.85 cents saved for every ounce shaved off a mailing.

Nonprofits seeking to save on their premium mailings might have to figure out new strategies again next year since the future of the NFM category remains unclear.

The United States Postal Service (USPS) in 2007 created NFM for Standard Mail items that could not meet the revised automation flats standards. USPS proposed discontinuing or refining NFMs by spring 2010, with mailings likely to qualify as Standard Mail parcels instead while some modified NFMs might mail as machinables or irregular flats.

The signal from the postal service is that NFM is not a supportable subclass category, said the DMA’s Boone. “This is the direction it’s heading in and it depends on how they’re going to define that,” she said.

Tony Conway, executive director of the Alliance for Nonprofit Mailers (ANM), said the new rates are signs that the cost of the USPS processing and handling NFMs and parcels remains high. “It’s a price signal that they’re obviously not trying to incent more of that volume in their system,” he said.

When the USPS first created the NFM category, it suggested it as an interim move while migrating the product line into the parcel category, Conway said. “Clearly, pricing is heading in that direction,” he added. NPT