News
 12
Cost-Cutting Tips You Can Take to the Bank
Think you’ve tried every way to save on postage?
Think again...
Stephen R. Lett and Sandy Wolstencroft took it upon
themselves to break down virtually all the ways you
can implement change in your catalog mailing
strategy to adapt to the new rates — but without
having to cut circulation. Want to be in on the
cost-saving loop?
This analysis will show you how the new postage rate
increase impacts the incremental break-even point.
Cutting circulation isn’t the solution to increased
costs. Instead, consider the following.
1.) Aggressively Co-mail
Talk with your printer about co-mailing (or
commingling). There are two big advantages:
• Postal savings. This is due to better presort
levels and possibly better drop-ship discounts. More
mail will qualify at the carrier route level.
• Better deliverability. More carrier route or
five-digit pallets will result, enabling the
catalogs to penetrate the postal system deeper,
which could generate additional savings by going to
more sectional center facilities (SCFs). This will
increase production flow through the postal system.
2.) Eliminate the Bind-in Order Form/Envelope
If you use a separate bind-in order form with
envelope, consider printing the order form on a page
in the catalog. As fewer orders actually are
received by mail, many catalogers have eliminated
the bind-in order form and envelope as a way to save
money.
Bind-in prices range from $12 to $20 (or more) per
thousand depending on the size, quantity printed and
use of color. They add weight to the catalog too,
which can increase postage costs. If you decide to
print the order form on a page in the catalog, part
of your cost saving calculation needs to include the
gross margin you will forfeit from the elimination
of saleable merchandise on the page (or two) you
devote to the “printed” order form. Eliminating the
bind-in order form also will impact your ability to
trace orders to a specific mail code, increasing the
necessity to do a matchback.
3.) Improve Your Margins
Work with suppliers to improve margins by lowering
costs or increasing retail prices. Catalogers are
reluctant to increase prices. Many use a bad formula
when pricing merchandise. For example, if the cost
of an item is $20 and your desired mark-up is two
times, you might establish a retail price of $40,
which yields a gross margin ratio of 50 percent. The
preferred method of pricing is based on the
perceived value of the item.
If you’re selling name-brand merchandise others are
selling, this method of pricing is more difficult.
But if you’re selling proprietary items that aren’t
readily available, pricing based on perceived value
will avoid leaving gross margin dollars on the
table. Consider increasing prices. It might be
painful, but catalog customers normally don’t
purchase based on price.
4.) Catalog Trim Size
If you mail a pound-rate catalog (weighing 3.3 oz.
or more), a slight reduction in the physical trim
size of your catalog will reduce your postage and
paper costs. For example, a reduction of a half-inch
vertically on an 80-page catalog can save $15,000 on
the paper and postage costs per 1 million copies
printed.
(Note: This assumes the weight requirement does not
change.)
5.) Paper Weight and Separate Covers
Test lighter weight papers. Test self-covers vs. a
heavier separate cover. A move to a slightly lighter
basis weight paper should have no impact on your
results. Paper is sold by the pound. If you use
fewer pounds, you may save money. You certainly can
save money on postage by using lighter weight paper,
provided your catalog mails at the pound rate.
A simple change from a 34 lb, No. 5 basis weight to
a 32 lb, No. 5 basis weight will save approximately
$12,000 in postage on a mailing of 1 million,
80-page catalogs.
6.) Use a Lower Grade of Paper
Changing grades can have a similar effect to
changing the basis weight of paper. Just be careful
not to go to extremes. Test a No. 5 grade, for
example, against a No. 4 or No. 3 grade. Unless your
offer is extremely upscale, a slight reduction in
the grade of paper you use can reduce your direct
selling expenses and ratio.
7.) ZIP + 4® and Carrier Coding
If you say you’ll be dropping non-codeable records
with your list order as a requirement, you can
deduct these names from the list rental invoice.
Noncodeable records don’t qualify for postal
discounts and generally are less deliverable and
therefore, less responsive. Also, make sure your
list rentals and housefile have been put through
National Change of Address (NCOALink®) recently.
8.) A/B Split Tests
If you do any split tests, look at the net benefit
of selective binding to keep the mailing in one ZIP
Code™ stream to maximize your postal discount as
opposed to separate ZIP® streams, which are more
costly. Generally, at quantities of 300,000 or more,
it’s more cost-efficient to selective bind.
Ask your service bureau to give you the postage
estimates both ways (one ZIP stream vs. two ZIP
streams) to be sure where the cutoff is. If the
postage savings outweigh the price of selective
binding, selective binding definitely is the way to
go.
9.) Add-a-name
Use add-a-name or add-an-address to increase carrier
route volume and qualify for added discounts.
Add-a-name is the process where you add one or two
records to a carrier route in order to qualify for a
discount if you were previously short of the
10-per-carrier requirement. Often, if you have a
pool of records to draw from that are close or at
breakeven, the records added bring your postal costs
down, and the net gain is positive. If you use
inactive buyers or modeled names from a cooperative
database, it’s usually worth doing. Keep in mind
that the number of add-a-name pieces added will be a
function of how many pieces are mailed and the
geographical distribution of the mailing. For most
mailers, a national circulation of 700,000 or more
is required for add-a-name to make economic sense.
At this level, generally about 5,000 to 10,000
catalogs will be added.
10.) Develop a Contact Strategy
Test for the preferred method of contact. For
example, if a customer only responds to e-mails, you
may be able to decrease catalog mailings and replace
these “contacts” with e-mail contacts. Often, Web
buyers aren’t traceable through typical source code
tracking. So they may look as if they’re not
responding well to a mailing when, in fact, they
are. Therefore, this method should be backed up by
significant testing over the course of a year.
WHAT NOT TO DO!
11.) Don’t Stop Mailing to Web-only Buyers
When you look at your source code report, it appears
that Web-only buyers are considerably below
breakeven. Even the results from the most recent Web
buyers don’t look exciting to you, I’m sure. It’s
logical to conclude that you should stop mailing
Web-only buyers in order to save money. However, in
recent matchback studies we’ve done, Web-only buyers
are performing at more than acceptable levels. Keep
mailing them.
12.) Don’t Reduce Pages
Maximize page count. Pages, i.e., more merchandise,
do increase the amount of revenue generated per
catalog mailed. The revenue per catalog mailed will
increase at half the percent increase in page count.
Assuming there is plenty of “good” merchandise to
sell, adding pages makes good economic sense. Adding
pages while making certain the paper and press
manufacturing are efficient can lower your
incremental break-even point while increasing
revenue.
Always maximize page count without increasing your
postage costs when you can. Once you’re required (by
weight) to mail at the pound rate, using the right
paper and page count combination can help minimize
the increase. It’s possible to circulate the same
number of pages (or more) for less money. As you
increase pages, consider reducing the basis weight
of the paper you’re using in order to reduce and
leverage costs.
---Sources:
Stephen R. Lett is president of Lett Direct Inc. and
a regular columnist for Catalog Success. Sandy
Wolstencroft is vice president of Lett Direct. You
can reach both of them via their Web site
www.lettdirect.com.
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