Don't Let New Postal Rates Put You Out of Business

John T Jones, Ph.D.
 


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Intermittently the USPS raises domestic and foreign postal rates. The last raise was on June 30, 2002. The latest rates take hold on January 9, 2006. The increase is 5.405% for a first class letter and 6.579 for the standard Priority Mail envelope. The new first class letter cost is $0.39. The new standard Priority Mail envelope cost is $4.05.

Increasing postal rates have been hurting mail order and direct mail businesses for a long time. Will this last raise be the straw that breaks the camel’s back? Some will just give up on making money in direct mail or mail order. The main impact is on businesses that are in the startup stage. Yes, this includes Farmer Brown who is trying to make a buck off his kitchen table.

I use first mail letters to promote my business activities. I use Priority Mail on many shipments. The factor is time.

Customers want their stuff fast. If they bought it in the store they would not have to wait. Any delay in receiving their shipment is detrimental.

Cost can be reduced by using bulk rates for direct mail. Some operators think that hurts response. Does it? I don’t know for sure because I just take their word for it. I don’t use bulk rates. That doesn’t mean that you shouldn’t. Talk to your Postmaster about the opportunity.

Look at This Example of a Direct Mail Program

Joe Blow sends out 1000 letters promoting his product.

The printing cost is $250.00.

The First Class mailing cost is $390.00.

He gets a 1% return or 10 orders for his product.

The postage and printing cost per order is $64.00.

If Joe’s product sells for $100.00 and the product cost him $50.00 AND it cost him $5.00 to ship it, what will he make? (Joe offers FREE SHIPPING as a come on. )

Order Income $1000.00

Shipping Cost -50.00

Cost of Goods Sold -500.00

Printing/Postage Cost -640.00

Profit or Loss -$190.00 LOSS

Joe looses $19.00 on every order.

Now What Happens?

A. Joe has only one product. He would like to raise the price but he thinks that his customers will not pay the increased price. He drops the direct mail program and tries mail order. He places a classified ad for inquiries. He sends his letter to those who respond and gets a 10% response. If Joe’s ad cost $35.00 and he got 100 inquiries and sold 10 of them, what would his cost be?

Order Income $1000.00

Shipping Cost -50.00

Cost of Goods Sold -500.00

Printing Cost -25.00

Postage Cost -39.00

AD Cost -35.00

Profit or Loss $351.00 PROFIT

B. Joe has more than one product. He knows that he will sell that product to 20% of those who sell the first product. He knows that he can get back his money from new orders. He charges for shipping on the second product. He packs the new sales letter in with the first product and here is what happens:

Order Income (2 of the 10) $200.00

Cost of Printing Second Letter 25.00

Cost of Product 100.00

Profit or Loss $75.00 PROFIT

The total LOSS for the direct mail campaign is now $115.00.

Joe still has options. Can he reclaim the rest of the loss by promoting future products?

He knows that his customer list is his most important asset.

But he needs to reduce the loss on the first mailing.

To do this, he makes a moderate price increase to break even. What is the new price? It is $119.00.

He requests a discount from his vender of 10% and gets it.

He spoofs up his sales letter emphasizing the (new) low price.

He includes a discount coupon for the next purchase.

Joe is able to increase the response to 2%. Can you calculate the profit on the first mailing under the new conditions?

Order Income $2380.00 (remember there are 20 orders this time)

Shipping Cost -100.00

Cost of Goods Sold -900.00 (remember the 10% discount Joe negotiated)

Printing/Postage Cost -640.00 (this didn’t change, did it?)

Profit or Loss $740.00 PROFIT

Joe earns $37.00 on every order.

Joe still has the option of trying a classified ad. He knows that he must work every angle to stay in business.

For example, he can ask other shippers to include his offer in their packaging. He can include their offer in his shipments.

What would you do in this situation? Let us know!

John T. Jones, Ph. D. (tjbooks@hotmail.com, a retired VP of R&D for Lenox China, is author of detective & western novels, nonfiction (business, scientific, engineering, humor), poetry, etc. Former editor of Ceramic Industry Magazine, Jones is Executive Representative of International Wealth Success. He calls himself “Taylor Jones, the hack writer. "

More info: http://www.tjbooks.com

Business web site: http://www.bookfindhelp.com (IWS wealth-success books and kits and business newsletters / TopFlight flagpoles)

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