Strategy Prepare For the Postal Hike

Postage costs represent about 40 percent of total catalog marketing expenses. Don't let next year's rate increase catch you off-guard.

When postage rates increase, catalogers really feel the pinch. For example, in January of this year, we experienced a 5.4 percent rate hike. This was the first rate increase since June 2002 (which, at the time, was the third increase in two years). Brace yourself for yet another increase in 2007. What's more, rumor has it the U.S. Postal Service wants to increase rates again in 2008, which would make three rate hikes in three years.

These increases could be steep enough to push some smaller catalogers over the edge. They could mean the difference between profit and loss on an income statement. (See the chart "Direct Selling Expenses to Net Sales Ratio.") What can you do about these increases? Despite all the lobbying from trade associations, you can't stop the increases from happening. But you can attempt to minimize the pain by adjusting your business strategy and taking advantage of the discounts offered by the USPS.

Sometime in 2007, probably in April or May, Standard mail rates likely will increase approximately 9 percent. Today, a catalog that weighs 3.3 ounces or less goes in the mail at the three-/five-digit rate of $275/M. The USPS plans to split the three-/five-digit classification into two separate classes, i.e., five-digit and three-digit. The five-digit rate is expected to be $300/M, a 7 percent jump. The three-digit rate is going to $328/M, or a 19 percent increase. If we assume a 50-50 split on the three-digit vs. five-digit rates (112,500 copies of each class in a mailing of 225,000 catalogs) the "blended" rate of the rate increase, taking these two classes into consideration, is approximately 14 percent. The carrier route rate is $204/M, which will rise to $233/M, a 14 percent increase.