Master Manufacturer: How to Do a Co-Mail Analysis
Co-mailing your publication with other titles offers great savings, but do you know how much you’re really saving? Do you know how to evaluate whether you could be saving more with another mailer/printer?
Savings promised by printers are typically what you would save by co-mailing compared to other options, such as direct entry, dynamic entry (drop-ship) or co-palletization. They are not calculating the difference between what you pay for postage now and what they propose (which would be your actual savings). So, it’s important for you to do your own analysis. And, since postage is a major cost center, it’s important to include a co-mail analysis with every print-bid project.
The following guidelines should help you better understand the process and determine your true costs and possible savings.
STEP 1. Prepare for the Analysis
When you are comparing co-mailing bids to your current method, you need to create a valid comparison by using the exact data used for a recently mailed issue:
1. Printer, mailer and U.S. Postal Service (USPS) receipts, including:
• list management;
• freight charges and fuel surcharges;
• miscellaneous administrative fees; and
• USPS 3541s.
2. A copy of the mail list used for that particular issue.
Many mail lists are updated regularly, and an updated list will not provide an accurate comparison. If you’re concerned about sending your valuable mailing list to an unknown company, a nondisclosure agreement from them will protect you.
STEP 2. Control the Process
A well-defined outline of your goals, process and schedule will help make sure prospective mailers respond with what you ask for, rather than bombarding you with “sales speak.”
STEP 3. Analyze the Proposals
Once you receive the proposals, first verify that the quantities, weights and ad percentages are the same as what you actually used. Don’t be surprised if they don’t match.
I’m always surprised that even when given the actual USPS 3541 forms, which contain that exact information, mailers will still use different figures. The main reason is that some versions are too small for the qualifying minimum on the mailer’s equipment. Each version requires its own station, and the mailer may decide to mail some versions by a different method. However, those copies still need to be accounted for.
Chances are that the mailers are going to propose one of two prominent methods, generally referred to as Shared Savings and Flat Percentage.
Flat Percentage Rate (FPR) was developed by Quebecor World in response to publishers’ difficulty in grasping the “moving target” concept of postage. It is very difficult to budget a number that changes with each issue. FPR, however, is very easy to calculate; it’s constant and predictable. It includes all of the highly volatile costs, such as freight, fuel surcharges, administration and, sometimes, list management.
Postage is calculated by using the direct-entry figures, as if your magazines were entered into the postal stream at the closest delivery unit to the printer. From this amount, the mailers will offer a discount as a flat percentage. At first, 10 percent was the standard. As with any generalized pricing structure that includes variables, it has to be priced so the vendor will not lose money. Conversely, that price is higher to cover possible increases, but easily sold as a matter of convenience and predictable numbers for budgeting.
The mailer retains the difference between what it charged you and what it paid the post office.
While FPR provides the comfort of knowing what the savings will be, it doesn’t maximize what the savings could be. In other words, given a total co-mail pool of 500,000 or so, the FPR may be a fair price to pay. However, if the vendor’s co-mail pool is more than 2 million, the actual savings could be more than 20 percent (compared to the 500,000 pool) for each event, in which case, you could be missing out on additional savings. In the end, FPR does not allow for transparency of actual costs—often, additional costs for shipping your books to a co-mail facility are wrapped up in this fee as well.
The Shared Savings Method (SSM) requires an education in postage and co-mailing technologies, as each element in the process is broken out and billed for individually. The mailer then splits the savings with you.
Here’s where it gets a bit more complicated. Each billable cost item is itemized; however, each mailer may or may not charge for different items in the equation. The best way to account for these items is to list them all, and use their quoted rate or label as “included.”
The difference-as-compared-to-what may vary from mailer to mailer. Some mailers will, again, use the direct-entry method, whereas others may use the presort costs. The presort costs are lower than direct entry; therefore, the split savings comes from a lower number.
However, presort costs provide for two advantages. First, any additional drop-ship savings you reap through the co-mail process are generally not included in this co-mail cost model. Therefore, you retain 100 percent of any additional drop-ship discounts. Secondly, this method will directly reflect your mail list’s participation in that co-mail pool, so you will not be as susceptible to the vendor’s co-mail volume fluctuations, which tend to have regular ups and downs.
If using SSM, the following items must be accounted for:
• co-mail/pal fee;
• percent of presort savings;
• admin/setup fee;
• estimated freight;
• fuel surcharge; and
• fuel surcharge percent.
Here’s what you’re looking at:
• The co-mail fee is the mailer’s cost for providing the service, determined by applying the discount percent to the appropriate figure. This is the mailer’s “cut” of the savings it captures for you.
• The percent of presort savings is the percentage mailers use to determine the co-mail fee. This percent, as mentioned earlier, may be off of direct entry or the presort amount. It is important to know which figure is being discounted.
• Administrative or setup fees are generic catch-all fees for managing co-mailing. They may or may not be insignificant. Either way, they need to be accounted for.
• Freight is the cost to ship the mailed copies to the post office. This figure varies depending on the method used. Even though the same number of copies, at the same weight and ad percent are being mailed, the printers’ plants are located in different parts of the country. They also use different pool destinations, therefore resulting in different freight rates. The important thing to verify is that the ad percent, weight and number of copies are the same.
Also, find out in advance if you are/will be co-mailing at the same facility where your magazines are printed. If not, you may incur additional freight for shipping your publications to a co-mail center.
• Fuel surcharge (FSC), or fuel-surcharge percent, is an
additional cost, calculated by multiplying the percentage against the freight costs.
Surcharges are temporary adjustments to cover unexpected fuel increases. As gas prices increase or decrease, the surcharge fluctuates. It goes away by either having prices return to the base level or by negotiating a new rate agreement.
Nowadays, the FSC does not appear to be going away. Instead of updating the fuel baseline every time a new agreement is used, mailers use the U.S. Department of Energy index for the national per-gallon average Retail On-Highway Diesel Price, which is updated each Monday. (You can find the index at: www.EIA.DOE.gov.)
It is interesting to note that the index’s base dates from 1981 when gas was priced at $1.25 to $1.29, and the FSC was 1.5 percent. Today, it hovers around 37 percent.
The FSC should be the same for all mailers, as it should be tied to the day that the sample issue was actually mailed.
Some miscellaneous costs come straight from the mailer, and like paper and ink usage, you pretty much have to trust the mailer’s figures; but try to verify as much as possible. When the mailer quotes a pool size, verify that pool is available on the days you actually mail. In other words, don’t let them calculate postage based on a large pool in which you will never mail. It’s difficult to ensure that there will be a co-mail match with every run, but you can improve your odds by looking for printers with maximum capacity and large mail pools.
The Importance of Pools
The pool’s size and participants have a tremendous effect on postage costs for all those in the pool. Each publication has different destinations, which may or may not dovetail into your list. In other words, if their copies are going to the same place as yours, you both benefit in presort savings. On the flip side, you may not complement each other, and you’ll reap little benefit. This cannot be controlled by you or the mailer. Mailers cannot and will not guarantee a pool size. The only guarantee comes with the FPR method, where the pool size does not matter.
As the project progresses, ask for updates, as pool sizes are in constant flux. For example, in a recent project, RR Donnelley added a million copies to its previously proposed pool. When questioned about the sudden change and “newer savings,” it stated that the pool we were targeted for actually grew by that much with the addition of three new customers. Just as easily, it could have lost those customers and the pool would be a million copies smaller.
A good tip is to ask for several pool sizes to be analyzed, thus resulting in “high” and “low” averages. This range is helpful to bean counters because they can choose what figure they want to budget.
Generally speaking, a larger pool requires longer mailing time and results in bigger savings. Conversely, smaller pools have quicker mailing times, but may net lesser savings. But this is not always true, as some mailers are running two machines in tandem, thus cutting time in half, and some smaller pools may have excellent mailing partners, resulting in better presorts.
STEP 4. FPR or SSM: Determine Your Preferences
Each method has its advantages and disadvantages, and each publisher will look at them differently.
Publishers that want a firm number for postage costs prefer the FPR method, as do companies who don’t have or want the expertise on staff to understand, manage and/or track the detailed calculations required by the SSM.
The SSM, though more complicated, usually results in lower postage costs (not always). Publisher using the SSM pay for what was actually used.
If a printer is not offering the co-mailing method you prefer, ask for it. Mailers may also have their preferences for which method they use, but will offer both. For example, if you want to use the FPR method, ask them to perform the SSM first. Then ask for an FPR analysis. Chances are they will try to get a similar result as the SSM. They may simply adjust the 10-percent discount to 11 percent or 12 percent. This way you may achieve similar results with the easier system.
STEP 5. Determine Your Real Savings
This is the key element of the entire process. Your real savings will be the difference between what is being proposed and your current costs.
You have your 3541s and know, to the penny, what your current costs are. To determine their baseline costs, printers use the direct-entry method (what it costs to directly enter the mail stream at their location—which is a different entry point from which your current printer uses). Therefore, each bid will have different direct-entry numbers. Chances are that you do not enter the mail stream directly. Your current mailer, if not already co-mailing, probably uses a combination of drop-shipping and co-palletizing, which costs considerably less than direct entry. Therefore, the savings a mailer is proposing to you are likely to appear to be greater than what you would actually save.
In your comparative analysis, be sure to compare all proposals to your actual method and costs.
STEP 6. Negotiate
Guess what? Co-mailing costs are negotiable—highly negotiable. Mailers are definitely making a profit from mailing your magazines. Some costs are not negotiable, such as postage and freight, but most everything else is.
With mailing costs becoming more significant in the printer-selection process, and co-mail services becoming more competitive, printers are getting more aggressive with their proposals.
Usually, some itemized costs in the SSM can be reduced or eliminated through persuasive negotiations. Administrative fees can be highly targeted, as can the percent of shared savings. Instead of the common 50 percent, some are now requesting only 40 percent.
Postage is now the most expensive line item in manufacturing and distribution costs. Due to the USPS mandating co-mailing as the only means to drastically reduce costs, managing this service has become critical.
Steven W. Frye is owner of Frye Publication Consulting in Hailey, Idaho. He is an expert in production processes, and has negotiated printing, paper and distribution contracts for dozens of publishers. He can be reached at Steve@SteveFrye.com.