direct mail, Economics, Marketing, USPS

Geez, Wally, What Are We Gonna Do Now?

Did you ever have a little brother, or sister, look up to you, and ask how to get out of the latest jam some misadventure brought upon them?

We might wonder how the latest USPS postal increase jams up direct marketers. Bottom line, it comes down to cost per response, or indirectly, response rates. There’s a formula you need to apply now, and it’s coming up shortly.

First off, the added cost of postage is somewhere around 2.4% to 3.0%, depending upon postal densities. So if you used to pay as much as 30 cents per piece for a mail drop, effective January 27th you will fork out as much as 30.8 cents. Not insurmountable, but that heavily laden camel is looking nervously for any straw piles nearby.

But what counts in the direct marketing arena is ROI. What does the postal rate do to returns on investment?

Just because postal rates go up, say, 2.7% doesn’t mean your mailing costs go up 2.7%. The total in-the-mail-cost includes creative, art, print, list, letter shop, freight and postage. For the basic #10 kit with letter, flyer, reply form and BRE, you may be paying $450-$600/m. It’s shocking to think that half of that cost is postage, but there it is.

A USPS 2.7% increase adds $8 to a $300 postal bill. But that is $8 added to a total in-mail cost of $450, or an 1.8% increase in total cost.

Your figures will vary from this. If you are mailing simple post cards, the increase in total cost is more significant. If you are mailing expensive, feature-rich, multi-component, highly customized mail, the increase is not as noticeable.

Still, you will experience a hike in cost, and that means you will see an increase in cost per response. That means if you used to have a $450/m cost, and a 2% response, your historical cost per response is $22.50 each, ($450/20=$22.50) Add in an $8/m postal hike, and your cost per response has grown to $22.90. The 40-cent increase doesn’t seem like a deal breaker, but the accountants will point out that your entire business functions on controlling cost.

So what do you do?

Calculate what higher response rate is now needed to mitigate the effect of the postal increase:

(New in-mail cost) divided by (Old in-mail cost) times current response rate.

($458/$450) x 2.00 = 2.0355…..2.036% response.

Where you used to get 20 responses per thousand, you now need 20.36.

So now, we have a target, what do we do?

Go back to the basics: list, offer, format, copy.

Examine your list to remove low propensity response groups, ensure addressing is current, and at the same time consider list increases if higher densities will lower postage. Optimize delivery, too. Are you commingling and co-palletizing mail for maximum cost reductions?

Does your offer optimize pricing?  Do you include an incentive premium?  Is there an incentive with deadline?  What can you add to the offer for free?

Format changes can boost response.  Change your envelope shape and color.  Add in additional pieces: buckslip, lift note, testimonial letter, freemium, sample, cards, labels, personalization, variable graphics. Remember anything up to 3.5 ounces costs the same, so don’t be bashful.

What about your copy?  Is there another theme to test?  A letter change?  New outer envelope copy?

Your opportunities to kick up your response rates never evaporate.  There’s always more to test.  Quantum leaps in response are uncommon, but still, a simple postal increase is cause for finding those drivers that will deliver the increases you need to keep up with the USPS.

Lastly, isn’t it great to have a little brother or sister asking for advice, or better yet, to be one?  Enjoy your holidays with family!

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