Paper Availability — Going From Bad to Worse

Paper is increasing in cost again!  And the timing to get paper is becoming longer and longer.

Custom stock and roll sizes can take several weeks to source as mills are running into the same issues as many other businesses: getting folks to come to work, fill equipment to run, and keep up with the demand.

The latest word is that by July 1, paper will see an increase of $4.00cwt (that’s $4 per 100lbs).

This would be an increase of 8% — an unprecedented increase. When a Mailshop gives an estimate of how much a job will cost your organization, paper typically represents 50%-60% of a quoted price. The remaining cost goes to labor, overhead, delivery, ink, folding, etc.

That means that with an 8% increase in paper, your quoted price for envelopes, letters, etc. will be about 5% higher than expected.  cwt

Shannon Murphy, Principal and Senior Vice President of Production

The Next Step

The dreaded word, allocation.

For those not familiar with how this one works, it basically looks like this:

Mills can’t meet demand. So they allocate inventory to printers and converters based on how much they buy and how much they have used over the last year.

Example

Let’s say company “A” bought $10,000 worth of paper in the past year. When put on allocation, they can only buy:

      1. The same as last year
      2. 90% of what they bought last year, etc.

The percentage they get will be based on supply.

The scary part is some printers could struggle to get paper. This is where suppliers’ strong relationships with paper manufacturers or merchants will play a key role in getting paper when needed.

How does this affect you? 

Factor in more time for projects. Getting paper will take longer, and of course with these announced price increases, it will cost more.

How Can CCAH Help?

    • We are starting early — making decisions on packages sooner so production can order paper before the art is released.
    • We’re talking with our production managers directly, asking about specialty stocks far in advance of wanting to use them.  We’re thinking about places we may have flexibility with the paper stocks we are using.
    • We’re being thoughtful on where strategy can change and where we won’t have wiggle room. Making major changes to package specifications midway through a job may spell big problems — if we have already ordered a special paper and the paper specs change — that original paper is still yours … the good news is you would have it available for your next mailing, or you could sell it to another supplier client if the need arose.

There is some uncertainty still, but it looks like the fall will be very similar to last year with paper challenges. Please plan ahead. And if you have any questions, please leave a comment below or send me an email at smurphy@ccah.com.

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Postal Increase Proposed

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.

Shannon Murphy, Principal and Senior Vice President of Production

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 smurphy@ccah.com.