Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.

Options Available in Starting Up a Mailing Operation

In days of yore the printer's responsibility ended at the dock door. Sure, sure the freightline was notified to come pick up a few skids or the mailing house was told the job was ready for their processing. But no more. The client wants the printer to manage the myriad of distribution details for their job including getting advance copies out by courier, 2,500 copies to the Las Vegas convention center in two days, 5,000 copies to foreign prospects by freight forwarder or camel merchant, 25,000 copies into USPS standard mail with all available rate discounts and the remaining 10,000 into the fulfillment warehouse for subsequent kitting or custom response packaging and delivery. And this is only the hard copy. Managing the e-mail broadcasting and other cyberspace distribution adds another dimension that will save for another epistle.

With time cycles contracting to get the hard copy to its various constituents and the costs of distribution often easily exceeding that of paper and printing costs, the printer is forced to do more than simply pass the baton to a trusted subcontractor. The print buyer is saying. "Get it done and save me money. Or I'll find a printer that will."

Since nearly 50% of all printing goes into the postal stream, this is the first area of distribution management that printers consider bringing in house. This article will present a broad brush of key issues to be addressed to assure a successful transition.

Product Champion Needed

The first major concern is to have an individual with knowledge of the USPS' Direct Mail Manual (DMM) regulations and first hand experience of working with the Postal Service system and employees. While many qualified and reputable postal hardware and software vendors provide fine hands on multi-media training, the thought of head hunting for this position may be a daunting decision for some CEOs.

Consequently, most printers with annual corporate sales in excess of $10 million often decide to acquire a viable mailing services vendor rather than hire this expertise and build the enterprise from the ground up. Their logic is that this business specialty requires federal regulatory experience, knowledge of the various equipment idiosyncrasies and expertise of running a business. There are three or four vendors that the printer has done business with successfully down through the years. They are a known quantity and therefore are perceived to be lower start up risk as an acquisition candidate.

Pro Forma Ratios Expected

In the process of planning for this expansion they spoke with other printers who had made the same move years earlier and found that the mature mailing services business will ultimately achieve revenues of perhaps 10-15% of total corporate sales. This would exclude the actual cost of postage. The square footage occupied by the mailing operation will similarly be about 10-15% of the printing plant square footage exclusive of the warehouse (raw material and finished goods) and the administrative staff space.

Other useful ratios that might be gleaned from dedicated trade associations, such as the Mailing and Fulfillment Service Association, would be revenue per square foot, revenue per full time employee, and profit margins. At NAPL's Mailing & Fulfillment Conference held the end of April last year Eric Casey, MFSA Vice President of Membership Services, offered some data from their association's most recent financial ratio study.

The MFSA 2003 Financial Ratio Study (2002 data) showed annualized revenue per square foot of $43.38 and revenue per full time equivalent employee of $60,926. For all association members the average net profit of 4.0% in 2002 is down from 7.5% reported in 1998. Considering that PIA Financial Ratio Studies for the same period indicated the Printing Industry to be barely half that net profit amount is a solid indicator of why this value-added service is an attractive expansion option for printers.

On the other hand, printers are used to revenues per employee of twice the mailing services' experience. So for planning purposes when considering expansion into mailing more full and part time people would be needed.

To continue our example further the $10 million would be looking to acquire a $1-3 million mailing services vendor. For illustration purposes, lets say this is a $2 million mailing vendor with 30 full time equivalent employees occupying 40,000 square feet of space.

Sales Volume Lost Versus Gained with Acquisition

Ideally this vendor would be one for whom this printer was providing the largest mailing volume of any other printer. The reason being that as soon as this mail vendor was moved into the printer's plant they might well be expected to lose the mail services volume of other competing printers. While a mailing services vendor could well be an acceptable subcontractor source for several competing printers, this acceptability evaporates when one printer buys the organization.

So depending upon how much of that original $1-3 million of annual mailing value-add services came from competing printers might determine whether the new expected sales volume might fall by 10-35%. The acquiring printer hopes that existing clients who are sending their mailing requirements to other third party mailing vendors will look favorably upon these additional in house services. And this new volume will more than offset the evaporated sales from competing printers. Case studies verify that both of these scenarios will occur to some extent or another. In other words some volume they will lose and other new volume they will gain simply because of this new corporate relationship and extension of services.

Mailing Trade Journals and Associations

In putting together a viable business plan to expand into these new value added services a printer has got lots of information sources. More and more articles are appearing in the traditional print trade journals. Plus there are dedicated periodicals for mailers. Three of which are Mailing Systems Technology, Parcel Shipping & Distribution and Journal of Mailing Communications. Free subscriptions for the first two are available from mailingsystemsmag.com and the later from P.O Box 1449, Milford, PA 18337.

A number of trade associations advocate for these special interests to include the Mailing and Fulfillment Service Association (mfsanet.org). MFSA has both a monthly journal and an active Internet chat line for members to seek answers to their immediate questions and concerns.

Equipment trade shows are excellent sources to learn what whistles and bells are available. Graph Expo in Chicago has had a dedicated mailing and fulfillment pavilion each of the last two years with these specialty vendors doubling their space in 2004 over 2003 to about 30,000 square feet of exhibit space. The upcoming Print '05 show this fall is expected to be even bigger in terms of more interested vendors occupying greater space.

Very quickly the serious printer who wants to get in this business will learn that he also needs to attend the dedicated mailing trade shows of which there are two: the National Postal Forum (npf.org) to be held in Nashville March 20-23, 2005 and MailCom (mailcom.org) to be held in Atlantic City May 3-6, 2005. Both of these national gatherings will have well over 70 educational seminars each covering every conceivable mailing topic.

Capital Expenditures Needed & ROI Possible

For an acquired on-going mailing business there may not be any immediate capital expenditures anticipated by the acquiring printer. But clearly one of the advantages of being acquired from the viewpoint of the mailing house CEO is that the acquiring printer has greater capital resources and in time can help the mailing house achieve greater efficiencies by adopting the leading edge software and high speed processing technology.

But lets step back and look at the capital expenditure budget to be expected for the smaller printer that is not large enough to acquire an existing mailing business but must start up his own. A start up package can be less than $40,000 to twice that amount for mailing list maintenance software, inkjeting addresses, inserting and tabbing. The lower value is for tabletop units that are slower intended for shorter run quantities. Many in-house mailing enterprises have found these to be quite satisfactory. Most printers will prefer more heavy-duty stand-alone equipment that operates at higher, more sustained rates. That's where the higher investment figures come in.

Return on investment can vary based upon total volume through the new system and the pricing of the previous vendor. If it is assumed that you "bought wisely" from your current vendor and initial volume is 80% utilization of key labor on a single shift, the ROI will often be 15-20%.

The real value can often be the 12-24 hours that the piece can enter the mail stream earlier due to scheduling efficiencies and simplified logistics. Part of the scheduling efficiencies is the fact that most in-line multi-tasking mailing equipment runs slower than a folder-gluer or saddle stitcher. Hence, the mailing task can begin when the first half skid is finished. In other words there is a practical overlap of production tasks for the most urgent of mailing jobs. What value does this time savings have to your client in terms of potential servicing premiums charged?

The simplified logistics refers to the savings realized from not having to carton pack, Gaylord pack, shrink-pack or truck the finished job over to the mailing house.

The heavier duty stand alone units, such as inserters and other multi-tasking in-line devices can exceed $100,000 investment but most are $40,000 - $80,000 with reliable used equipment being half that figure.

In short order as volume grows the printer-mailer will find that multiple inserters, multiple inkjet units with and without in-line tabbers will be needed to process multiple jobs concurrently or that each require specialized capabilities. Used equipment is standard for mailers, which means very strong in house maintenance capabilities.

Refurbished used equipment is almost universally available from the original equipment manufacturers. The publications cited in the side bar entitled "Getting Started" would often have listings of used equipment from dealers as well as owners wanting to upgrade. The associations also have listings of used equipment. Non-members will often have access to these listings though non-members of the association would not be allowed to list any of their own equipment for sale.

Software

The two key types of software needed are the technical operational module built around the USPS postal regulations and the administrative business software to track and compile costs for management reporting and billing purposes.

Highly reputable software firms, such as BCC Software and Satori Software, can carry start up operations into substantial mail volumes. Additionally more heavy weight software vendors, such as First Logic, can handle huge databases and more custom integration of merged data.

Business management information systems for mailing entities have been around for a long time. And as printers expanding into mailing and fulfillment service the need for enterprise costing and processing systems become more of an issue. Print MIS vendors are aware of these needs and are improving their offerings both in terms of dedicated modules as well as Internet browser acceptability of data entry and transfer. Taylored Solutions, Printers Software, Inc. and EFI's Hagen and Logic Systems are but a few of the print MIS vendors that purport to have such capability.

Mail processing software that is compatible with the various postal regulations can easily be less than $5,000 a year. Compiling business data and costing information for a mailing operation is often a one-time investment of $20,000. Integrating this mailing business info back into the enterprise MIS network could be ten times that investment. An example of the high end of an enterprise solution is the fully integrated EFI package in conjunction with Manhattan Associates logistical software offering installed a little over a year ago at Suttle-Straus in Waunakee, Wisconsin. This provides warehouse inventory management, fulfillment pick and pack order processing, labor costing integration back into print production, and logistical manifest management.

Printers adding mailing services are always relieved at the modest capital investment required to get started. As they learn what it takes to excel in this new business, the capital investment requirement grows substantially but again as a relatively modest step up compared to a 6-8 unit press.

Pricing Targets

The market place sets prices for sure. The printer's major customers may give him past mailing invoices to help him assure that his costs don't get out of line. And this is a vital piece of micro data to have.

However, in a macro-planning context it might also be helpful to have a copy of pricing surveys covering the full gamut of services offered. The Southeastern Mailers Association publishes such a pricing study every other year from data supplied by mailers throughout the country. The current edition can be purchased from semai.org or call 770-512-7980. Including set up or make ready every incremental task has a per thousand run rate. The longer the run the lower is this last rate. For planning purposes the printer could set proformas pricing rates at about $60 per thousand as an accumulation of three or four production tasks going into a completed mailing piece.

When in doubt, outsource

This article has given a broad brush at helping a printer consider most of the key elements needed to put together a business plan for moving into the mailing business. From an operational perspective a key caveat remains. And that is that as a general commercial printer you probably expect to be able to print virtually anything that your key clients request of you. That is not true for mailing or fulfillment. Of the first ten jobs given you to be mailed you can handle eight with no problem at all. One of these might require substantial slow down as you learn the idiosyncrasies. But there could easily be one job that is over your head and you should readily outsource.

While it is recommended that you join one or more of the trade associations mentioned here, even as a nonmember you can find specialty vendors on their websites to collaborate with in outsourcing unique jobs. You will no doubt find out that your key clients that are encouraging you to get into these new services will have no problem with you outsourcing isolated complex jobs and hopefully learning from the experience.

Should you blindly accept a bear of a job that is beyond your capability and mess it up the downside could be disastrous. Mess up a printing job and you reprint the job. Mess up a mailing job and you could jeopardize your relationship with the client. While printers outsource to their competition only under dire circumstances, you will find that mailers outsource to their competition on a regular and on-going basis. There is a great deal more collaboration and cooperation in this segment of the business for the benefit of the client than most printers are accustom to.

Successful Case Study

Corporate Press, headquartered in Landover, Maryland generates 25% of its revenues from non-ink on paper products, such as fulfillment, mailing, and call center services, that did not exist three years ago according to their President Michael Marcian. All of these ancillary services drive print volume.

The firm has developed such a strong reputation for their technical and regulatory expertise in the mailing area that prospective clients come seeking only mailing services. They are told that Corporate Press only mails what they also print. Corporate entered this business by buying a mailing company. There are now 80 full time employees involved with their six day a week mailing services operation that generates a 55% gross profit.

Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.