Faced with a substantial decline in mail volumes, Postmaster General Jack Potter and his management team hired consultants to look at the next ten years and figure out how to increase revenue, decrease costs, and manage the ultimate demise of the United States Postal Service. Instead, they should have been figuring out how to substantially increase mail volumes!

The hallmarks of their ten year plan is to increase revenue through a series of exigent rate increases, decrease costs by reducing postal operations from six days a week to five, and slow the pace of the downward spiral in mail volumes through ineffective, complex, targeted "sales". Of course none of these actions will be successful nor could they prevent the destruction of the United States Postal Service if they were successful. In fact, the more successful management is at implementing PMG Potter's ten year plan the faster mail volumes will decline.

Instead of hiring the best doomsday consultants money can buy, postal management should have hired consultants capable of devising a plan that would increase mail volume. After all, it's a loss of mail volume (and lack of congressional action) that threatens the survival of the Postal Service.

After three years of significant declines in mail volume it's obvious that the people in charge of USPS marketing, and especially their ad agency, don't have a clue about growing the use of direct mail! Mail volumes have dropped off a cliff and yet all we hear is "if it fits it ships". Pushing package services is OK, but dedicating 100% of your marketing budget to a product line that generates 10% of your sales is a bit myopic. I realize the ad agency of record has won several prestigious awards for "if it fits it ships" but really, this "ship" has sailed and it's vital that they move on to the hard work of increasing letter and flat volumes. It's imperative that the USPS marketing team generates the necessary mail volume to keep their distribution infrastructure viable!

And as important as developing a marking plan capable of increasing mail volume is to survival, consultants should tackle the pricing of postal products first. What management has never done for this (independent?) government agency and congress is to determine the optimum postage rates capable of generating the maximum volume of mail while covering associated delivery costs.

In 2001, the vast majority of all mailers were small and medium sized businesses. These customers, along with many larger mailers, were driven out of the mail stream by high postage costs. Most people in the postal community blame the internet and electronic diversion for the loss of customers and mail volume. The truth is that it was high postage costs that drove hard copy messages out of the postal mail stream and to Internet delivery.

Establishing the correct pricing for postal delivery services is critical for the survival of the USPS. What has to happen for the USPS to generate the volume of mail necessary to maintain the viability of its delivery infrastructure, is for there to be a significant downward adjustment in postage rates. The rates assessed direct mail customers should only cover the cost of the services they use; collecting, processing, and delivering bulk business mail plus a reasonable margin.

According to the USPS 2009 Annual Compliance Report (ACR), First Class presorted letters cost the USPS $0.117 each piece to collect, process and deliver. The USPS generated revenues of $0.34 each piece delivered or a margin of nearly 300%. If the USPS rolled First Class postage back to the 2001 rate of $0.278 they would still generate more than a 130% profit margin. The direct mail industry on average operates on less than 10%.

For Standard Mail, the 2009 ACR says that it cost $0.109 to deliver automated letters. This product is being charged $0.188. High density and carrier route letters cost $0.063 to deliver and generate $0.134 in revenue. Carrier Route Saturation Flats cost $0.067 providing revenues of $0.16 each piece. With margins on these products running from 100% to over 200%, the United States Postal Service could roll all postage rates back to the 2001 rate schedule and still cover all delivery costs, while generating a substantial profit on their delivery services.

Want to increase mail volume, think what a postage cost of $0.253 (5-digit) would do for First Class mail volume? Or imagine the volume a $0.15 Standard Mail letter rate could generate or a Saturation Flat rate of $0.114? With a current cost of $0.067 for Saturated Flats, the Postal Service would still generate a 70% margin on each piece delivered. Lower postage costs would make it easier for the postal marketing group to entice new customers to the physical mail stream and possibly lure a few old customers back.

Of course, postage rates based only on the cost of delivering mail would leave a rather large deficit in the postal budget. Therefore several things would need to happen for the Postal Service to stay operational. One is that postal employees, which generate 80% of all postal costs, would have to work for the same wages and benefits that prevail in the private sector (the direct mail industry) and all excess employees would have to be terminated.

Other changes? The price of some delivery products and services would have to be raised to cover their costs with the elimination of others. Finally, users of services not associated with the acceptance, processing, and delivery of bulk business mail would have to pay for the use of those services and facilities, rather than forcing the business community to cover all postal costs.

In most cases, these costs (non-delivery costs) would be covered by the United States congress through the appropriation of federal tax dollars. After all, it is the residents of the United States that collectively benefit from the products and services provided by the United States Postal Service. It's also those same residents that demand that their political representatives keep open unnecessary and redundant facilities in their communities.

If businesses owned and operated the Postal Service, areas of available mail delivery would be based on the concentration of recipients and their demographics. There would be no need for Post Offices, only processing and delivery centers. There wouldn't be lower rates for non-profits, the USPS would not be carrying unprofitable freight to Alaska and Hawaii, nor would there be free political mail. All rates, including Aunt Mini's Christmas card, would be based on distance traveled with substantial surcharges for "out of network" or home delivery.

The United States Postal Service is owned by the citizens of the United States of America. It was designed to be funded by the United States congress for the benefit of all residents of this country no matter where they live or to which demographic group they belong. It's time for congress to step up to their responsibility or be blamed for the demise of this great institution.
Todd Butler, Butler Mailing Services, eKEY® Technologies, can be contacted at 513-870-5060, toddb@butlermail.com
or www.ekeymailer.com.