"Ok, everyone who is providing mailing services raise your hands." Attend a printing conference these days and you are likely to see 30% to 40% or even more of those in attendance raise their hands. That's just one of the trends revealed in a new study that explores pricing and productivity in the mailing industry the 2005-06 Mailing Services Pricing Study. The study is the second to be published in four years by a small but active association of mailers located in
Five years ago, SEMAi decided to conduct a national survey of pricing practices within the mailing industry to help its own members resolve questions about pricing practices. For many years prior, competing associations actively discouraged "surveys of pricing practices," believing that such studies were illegal and could even be misinterpreted as attempts to fix prices.
To allay those fears and avoid any possible charges of "price fixing," SEMAi contacted us at Q.P. Consulting, Inc. of
In the spring of 2002, the final result of SEMAi's efforts was the publication of the first-ever study of pricing in the mailing industry the 2002-03 Mailing Services Pricing Study. The study was hailed in the mailing industry as a breakthrough, which revealed many previously unknown trends and practices within the industry. Based upon the association's success with its first survey, it decided to conduct a similar follow-up study in early 2005.
Second Pricing Study Released
The second survey was conducted early in 2005, and it resulted in the release of the 2005-06 Mailing Services Pricing Study. More than 285 companies participated, providing a wealth of information regarding not only what companies were charging for services but other useful operational details as well. As with every survey we conduct, a great deal of time was spent checking the accuracy of the data in order to make sure we caught erroneous answers that would unduly affect the computation
of "averages."
The database contained more than 60,000 cells, and virtually every cell entry was checked manually in order to detect and eliminate "bad" entries that would distort the results. Because of great variations in estimated annual sales, physical plant size, number of employees and monthly piece counts, we chose to provide readers with both "average" and "median" figures for many of the questions asked in the survey. As for the prices of specific services and products, we chose to report "averages" only.
The Typical Survey Participant
As we experienced back in 2003, responses to the 2005-06 Mailing Services Pricing Survey represented a broad range of firms in terms of annual sales. We received a significant number of surveys from some very large firms who mailed four million or more pieces per month down to very small firms mailing less than 50,000 pieces each month.
Although we eliminated many "outliers" from our calculations so they would not unduly distort the averages, we nonetheless uncovered some dramatic differences when we tried to develop a snapshot of the industry. Sometimes, reporting both averages and medians was the only way to paint a clear picture of our survey participants and, hopefully, the mailing industry at large.
A Profile of the Industry
Okay, let's take a look at a few specifics. Here's the profile of the typical participant in the most recent Pricing · Survey. Whether you choose to rely on the averages as opposed to the median ratios is strictly up to you:
As you can see, there are some significant differences when we separate participants by averages as compared to medians. As we have noted previously, the significant differences are the result of receiving survey forms from some very large firms across the country. Like it or not, these firms often dominate not only these statistics, but also the markets in which they operate.
Monthly Piece Counts
Monthly piece counts, or the number of mailing pieces that are processed (not enclosures) and mailed in an average month, are a popular method within the mailing industry for tracking capacity, productivity and size. As you can see from the figures, as well as from more detailed statistics in the study itself, monthly piece counts for survey participants ranged from below 35,000 per month to companies that are processing in excess of more than four million pieces per month.
One unique feature of the study is a section titled "Market Basket Comparisons." This section compares prices of 14 of the most common services provided within the mailing industry. These services range from minimum processing charges and fees for affixing labels to charges for inkjet addressing and sorting and bundling of flats. The Market Basket comparisons also include 11 key financial and productivity ratios as well, including sales, average monthly piece counts to sales per employee and percent of mailing sales to printing sales.
The Market Basket comparisons include breakouts by geographic region, type of firm, sales volume, population density and piece counts. Essentially, it seeks to provide a variety of comparisons in order to examine the basic differences in pricing if they exist. They can be used to compare one firm's performance, productivity and pricing practices against firms similar in size and location.
Interestingly enough, one of the major surprises uncovered in the current study is that while the average monthly piece counts of participating firms varied dramatically, there is virtually no difference whatsoever in the overall price of the Market Basket as used in the survey. This finding is in contrast with our previous pricing study in which we found the larger companies charging significantly more than their smaller peers.
Sales Per Employee and Productivity
"Sales Per employee" (SPE) is one of the key ratios examined in the pricing study. SPE is calculated by dividing total annual sales (excluding postage income) by the total of number of employees required to produce these sales. (Remember, all employees, including working owners, should be counted to arrive at a correct SPE. Part-time employees should be converted to the equivalent number of full-time employees when calculating this ratio.) SPE is a popular ratio used in many industries to compare the relative productivity of one company against another.
One of the most startling and disturbing statistics uncovered in the study is the vast difference in reported sales per employee within this industry. According to the study, SPEs within the mailing industry range from below $35,000 to $150,000 or more. Even after eliminating the outliers (statistical extremes and anomalies in a database), there was a significant number of participants at both ends of the SPE spectrum.
To put SPE in a different perspective, it is not unusual for one company to produce $700,000 in mailing sales (excluding postage) with less than five full-time employees, while another competitor might require twice as many employees to process the same volume and type of work. One of our conclusions reached in the study is that, contrary to popular opinion, success in the mailing industry does not stem from unique pricing practices, but rather from being able to achieve much higher levels of competence and productivity than your competitors.
Interestingly enough, companies with high SPEs in the $120,000 range and higher typically employ fewer, but more highly skilled employees. These employees are typically paid higher wages than many of their peers. Companies with high SPEs are also far more likely to upgrade their equipment and software than their less productive competitors, allowing them to process even higher volumes of mail each month. Ultimately, this type of enhanced productivity also translates into higher profits as well.
In part II, we'll analyze some of the other details revealed in this study as well as compare prices for some of the 38 mailing services and fees charged within the industry.
John C. Stewart is President of Q.P. Consulting. The price of the 2005-06 Mailing Services Pricing Study is $215. Regarding ordering information, please go online to www.quickconsultant.com (copies of the pricing study are available in both hardcopy as well as PDFs). For additional information, you may also contact the publisher, Q.P. Consulting, Inc. by phone at 321-727-2442. (Editor's Note: Part II of this article will appear in the September issue.)
