Postage has increased every year since 2012. Of course, no one wants to see rate increases, but these increases were nominal and capped at the consumer price index (CPI).
Last November, this changed when the Postal Regulatory Commission decided they were going to allow the postal service more flexibility in pricing for mailing services. Meaning the post office can raise rates above the CPI based on certain factors, like the growing number of delivery points a carrier delivers to 6 days a week, funding retirement for USPS employees, a penalty for underwater rates, and any unused rate authority from previous increases.
Friday’s proposed increase will be the largest we have seen in a one-year period in the last decade (or ever for that matter) — with an average increase of 6.8%!
But, the good news (if we can consider it that) is that the USPS will not be asking for an increase in January 2022 as they have in past years.
What does this mean for nonprofit organizations?
A significant increase in the cost per piece budget for all direct mail campaigns. In a typical campaign, postage accounts for 30-70% of total cost. That means in a program that spends $5,000,000 annually on direct mail, an increase like the one proposed (assuming postage accounts for 30% of total campaign cost) would add $340,000 in additional cost over the course of a year. Imagine if you spent double or triple that. Can your organization afford this?
So, what can organizations do?
Although the proposed increase is currently being challenged in the court of appeals, my advice is to:
- Adjust your budgets, the court decision could take a while. And this likely isn’t a one and done — chances are, we’ll see this again for the next five years, at which time the regulators will take another look at the rates.
- Take a more critical look at how spend is allocated across your program: Is it optimized? Should you consider adding a new channel to your program?
- Work with your agency or mailshop to analyze each mail file to sort to the best possible sort level. Even when that means splitting the file up between SCF, NDC and commingle. The more we can do on the front end to maximize sort levels, the lower the postage rate.
- Test! For example, with the proposed increases, flat rates will crush your budget!!! If you have a 9×12 calendar, test a 6×9. Maybe you have done this in the past and found the larger calendar as the winner — but that was 10 cents ago. Ask yourself, do you really need to mail $50+ segments at first class rates? Maybe you’ll get similar results mailing third class. SRE’s are great and increase response — but will they give you the needed ROI when the additional 3 cents for first class postage is added?
With all that said, I wouldn’t throw the baby out with the bath water. Direct mail accounts for a large portion of overall nonprofit revenue — for one organization CCAH works with, their direct mail fundraising accounts for 70% of their annual fundraising budget.
Bottom line, it takes all channels for a successful fundraising campaign. Break down silos between channels to make decisions based on your organization’s key performance indicators and long-term goals.
There are lots of moving parts in the direct mail production world — more updates to come as we get them! Please leave any questions below or send me an email at firstname.lastname@example.org.