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A Deep Dive into the Cost Drivers of a Direct Mail Program – Part 2

Direct marketing is not a new advertising strategy, but the associated tactics often change with the latest trends and technologies. Direct mail is one tactic under the direct marketing umbrella that has stood the test of time despite the shift to digital in most other areas of the advertising space. This post is the second in a series of two that discusses direct mail as a tactic and the cost drivers that impact the cost of executing one of these programs. You can read part 1 here.

As we described previously, there are four main cost components of a direct mail program: mail lists, creative and design, print and lettershop, and postage. There are different strategies for each of these and managing the costs of some are more complicated than others. Mail lists and postage are the two components that require more than a standard sourcing process in order to identify areas of cost reduction.

Previously, we took an in-depth look at gaining access to mail lists as a cost driver for direct mail campaigns and the strategies that can be executed to manage those costs. This post will take a deep dive into postage as a cost driver and the different postage optimization strategies that can be implemented to reduce costs.

Postage is one of, if not the most, significant cost driver for a direct mail program. Industry trends indicate that postage costs can represent an estimated 40 to 70 percent of the overall program costs. Despite knowing that postage encompasses such a large portion of the total program budget, many consider it to be non-negotiable. One of the main reasons for this assumption is because postage rates are controlled by the US Postal Service. However, as we saw with mail lists, there are ways of managing the costs associated with postage to achieve cost savings.

First, let’s discuss the factors that influence postage costs. The type of mailing – postcard, letter, large envelope, etc. – will have an impact on the cost of postage. Of these mail types, postcards have the least expensive postage costs. There are a number of different classes of postage with the USPS that can be used to send a direct mail piece: priority, first class, standard, every door direct, etc. First class mail (or a standard stamp) is the most common and the least expensive postage class. Additionally, the size and weight of the mail piece will impact the cost as pricing is tiered based on weight. Similarly, there are different weight restrictions for each class that will determine how mail can be sent. For example, pieces must be less than 13 ounces to be sent first class. Finally, there are potential discounts available based on the quantity of pieces sent in one batch, which we will discuss in more detail below.

It would be easy to suggest that you always send bulk mailers of one ounce postcards by first class mail; however, that is not realistic. There are different postage optimization strategies you can utilize for your direct mail campaign to reduce postage costs.

  • Pre-sorting. One of the first steps the USPS will take upon receiving your mailers is to sort the mail by zip code in order to process and send to the local post office for delivery. Pre-sorting is when the mail is sorted by zip code at your or your mailshop’s facility before delivery to the USPS. Sorting can be performed using software, a presort service provider, or just doing it manually yourself. Postage discounts are available for pre-sorting mail; however, certain volume requirements for each of the mail classes must be met in order to realize these volume-based discounts. To see if your direct mail qualifies for bulk discounts check out the USPS’ Business mail 101 and Updated Price List.
  • After mail has been sorted by zip code, it is then grouped together, or “commingled” with other mailers for the same areas from other companies. Again, there are certain volume requirements to be eligible for discounts, so by grouping your mailers with those of other companies you are able to reach volume tiers you otherwise may not have reached. By commingling your mailers, you are able to increase the quantities shipped and become eligible for volume-based discounts.
  • Drop-Shipping. Another method for reducing postage costs after sorting mail is drop-shipping, or destination entry postal drop shipping. Once the mail has been sorted by zip code, they are grouped together on pallets and shipped to regional facilities nearby to the zip code locations. By delivering mailings to local facilities, you alleviate the responsibility of the USPS and are eligible for postage discounts. It should be noted that you will have to pay the costs associated with shipping the pallets of mail to the USPS facilities.
  • Multiple Entry Drop Ship. Taking drop-shipping a step further, multiple entry drop ship is when pallets of mailers are delivered to USPS locations even closer to their final destination. As with drop-shipping, postage discounts are available and you will incur the cost of shipping the pallets.
  • Intelligent Mail Barcode. Intelligent Mail Barcodes (IMb) are 65 bar codes printed on mail pieces for improved sorting and tracking purposes. The IMb replaced its predecessors, POSTNET and PLANET, to provide greater visibility into the mail status and further automate the sorting process. By using the IMb, you are eligible for automation discounts through the USPS for further optimizing the postage and mailing process.

Each component of a direct mail campaign will have an influence on the others, therefore the strategies you take to reduce the costs of one component will have an impact on the other elements of your campaign. For example, the weight and size of a mailer will be decided as part of the creative and design stage. If the design calls for a postcard rather than envelope, the postage costs will be less significant.

There are a number of steps that can be taken during the development and execution of a direct mail program to reduce overall program costs. If you are considering executing a direct mail program or looking to improve your current program, you should review all components of a direct mail program for efficiencies and areas of improvement as they will have an impact on the overall campaign cost. And remember, sometimes the simplest answer is the best one: always cleanse your mail lists of names and addresses that are no longer useful to prevent wasting postage.

If the market is any indication, direct mail is not slowing down as a key marketing tactic and remains at the forefront of many marketer’s strategies. Direct mail can be a complicated tactic to manage from a cost standpoint, but as we’ve seen, there are strategies that can be taken to reduce these costs without disrupting the campaign as a whole.

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Thursday, 21 September 2017