Cutting the Costs of Postal Commincations

How to cut the cost of
postal communications.
A White Paper from Neopost

Cut Costs
Improve Productivity
Communicate more effectively
Manage the mail process

©2012 Neopost Page 1

How to cut the cost of postal communications | White Paper

Contents

Introduction.
A changing market and what it means for business. 03

Alternative Postal Providers.
Making the most of new opportunities to cut costs. 04

Saving Money with Royal Mail.
Why franking is better value than ever. 05

Mail Preparation.
How to prepare mail to maximise savings and eliminate waste. 06

Outgoing Mail.
Cost-effective alternatives to a first class stamp. 08

Incoming Mail.
The impact of mail processing on labour costs. 09
Despite its
Why Neopost.
importance How Neopost can help you save money and improve efficiency. 10

to business,

mailing

remains

an under-

managed

activity.

Page 2 ©2012 Neopost


Introduction
Each day, Royal Mail delivers 59 million letters, packets and parcels to 29
million UK addresses. Almost nine out of 10 items (88%) are sent by business
and the public sector. In an age of smartphones and social networks, the post
remains an important channel that can help build relationships and generate
business.
• It is a trusted medium: for important messages, many organisations

will only ever use the post and a posted letter is still used as proof of
identification;
• It is what customers want – in a Royal Mail survey1, 73% of respondents

said they would feel inconvenienced if they no longer received paper
statements – and for those without access to the internet, it is the only
option;
• t is effective: using direct mail as part of an integrated marketing campaign
I
increases payback by up to 20%2. The impact is strongest on the online
components of a campaign, which have a 62% higher ROI when direct mail
is added to the mix.
Despite its importance to business, mail remains an under-managed activity.
At a time of major structural change in the industry and more options to
automate the mailroom, too many businesses are failing to make the most of
opportunities to cut costs, improve productivity and manage the mail process.

A Time of Change
In the last decade there have been two major developments: market
liberalisation, which has brought in new postal operators; and a steady decline
in mail volumes – down 25% since 20063 – as consumers and businesses
embrace electronic communications.
What hasn’t changed is Royal Mail’s responsibility for ‘final mile’ delivery and
What hasn't
the Universal Service Obligation (USO), which mandates nationwide pricing
and daily deliveries to every address in the UK. changed is
To enable Royal Mail to compete with rivals and bear the cost of the USO at
a time of falling demand, postal regulator Ofcom has given it more freedom Royal Mail's
to set its own pricing. In April it lifted all restrictions on what Royal Mail can
responsibility
charge for First Class stamps and most business mail.
Another recent development designed to level the playing field for European for 'final mile'
postal operators is the imposition of VAT on retail mail services, bar those
subject to the universal service obligation, such as 1st and 2nd class post. delivery...
Running in parallel with these changes, Royal Mail has been implementing a
programme of modernisation to minimise the need for manual processing in
mail centres, supported by pricing policies that encourage greater automation
e.g. Pricing in Proportion (PiP) and the growing divergence between the cost
of stamps and franked mail.
As postal services evolve, businesses that use mail in the same way as before
will see costs rise, whereas those that adapt will be able to take advantage of
new money-saving opportunities.

1 Royal Mail study comprising research by Brahm, GFK FRS and Quadrangle, 2010.

2 Royal Mail and Brand Science, Meta Analysis of Direct Mail, 2011

3 Safeguarding the UK's Universal Postal service in the digital age, Richard Hooper, 2010.



Alternative Postal Providers
The most far-reaching change affecting mail users is greater choice. Today,
there are many alternatives to Royal Mail, all with the potential to save
customers money. These include:
n Down Stream Access. Liberalisation of the UK postal market in 2004

gave alternative postal providers the ability to collect mail from customers,
sort it and then pass it on to Royal Mail for ‘last mile’ delivery, a process
known as down stream access or DSA. Downstream access licence holders,
which include postal operators, commercial logistics companies and even
some very large mail users, pay Royal Mail a fee for using their delivery
network, but by focusing on the lucrative business market are sometimes
able to undercut Royal Mail. DSA providers have taken a large share of the
market: from April 2010 to March 2011, Royal Mail delivered 7,064 million
DSA letters representing 41% of all deliveries (excluding unaddressed mail)4
and about 50% of business mail. However, their price advantage is eroding
as Royal Mail raises prices for access to its delivery network and increases
customer discounts for Business Mail products and high volume mailings.

The most far- n Private Exchanges. Another option, popular with solicitors, accountants

and other professional services, are private networks or exchanges that
reaching change operate independently of the national post. Companies like DX Document
Exchange provide a network of collection points where members have secure
affecting mail lockers and can drop off and pick up post. These are closed networks and
only deliver to other members, so will not meet a customer’s postal needs
users is greater in their entirety. However, for specific mail flows, they can be cheaper and
arguably more convenient than Royal Mail as there is no need to weigh, size
choice.
or apply postage to mail.
n Hybrid mail. This is the term applied to the outsourcing of mail production

to a third party provider who prints, encloses and posts mail sent
electronically from a customer’s PC or network. Economies of scale in print
production centres (for printing and stationery) and the preparation of
mailings to take maximum benefit of discount schemes can result in big
savings. Hybrid mail is a viable option for businesses of all sizes including
small multi-site organisations, such as estate agents, that can consolidate
output from branch offices to qualify for volume discounts. However, many
companies are reluctant to lose control of their mailings and their data,
which may explain why this option has not been more widely adopted.
n Electronic Substitution. Most people prefer to be contacted by post, but

as the vast majority of letters are created on a PC, it can make sense to
distribute them electronically and eliminate the costs of printing, processing
and postage. Electronic substitution is a question of business strategy, but it
can be useful where customers opt in to receive email or SMS messages.

4 Royal Mail Group Ltd Regulatory Financial Statements 2010-11



Saving Money with Royal Mail
Royal Mail has responded to greater competition in the postal market by
increasing discounts for business products, to the extent that it is now worthwhile
even for those who send very few letters to consider how they prepare and pay
for postal communications.

Franking For All
Franking has always been a convenient way to pay for postage and in the last First class
seven years it has become an increasingly economical one, as Royal Mail has
applied smaller increases to the cost of franked mail than stamps. The differential metered mail
between the price of a stamp and metered mail has grown to such an extent that
first class metered mail now costs less than a second class stamp. now costs less
In April, Royal Mail increased the price of a 1st class stamp by 30%, from 46p than a second
to 60p, and the price of a 2nd class one by 39%, from 36p to 50p. Increases for
franked mail were significantly lower, 13% for a First Class letter (39p to 44p) class stamp.
and 10% for a Second Class letter (28p to 31p).
With discounts of up to 19p per letter, franking is an economical option for
businesses sending as few as 5 items a day even when you include meter rental
and operating costs.

Volume Discounts
Users sending between 500 and 25,000 letters per mailing can cut costs further
by taking advantage of discounts for mail prepared in a way that can be read by
Royal Mail sorting machines. To qualify, addresses must be printed with approved
OCR-readable fonts or barcodes containing the postcode and delivery point.
Royal Mail Business Mail (previously Cleanmail, Mailsort and Walksort) offers
discounts on the cost of franked mail of as much as 23.5% depending on various
factors including the number of letters sent; how the mail is addressed (OCR font
or barcode); addressing accuracy; and whether mail is unsorted or pre-sorted by
the customer into specific postcode areas.

Pricing in Proportion
Another change that has had a big
impact on mailing costs is Pricing
in Proportion (PiP). Introduced in
2006, PiP brought in the concept
of differential pricing based on an
item's size and weight. At today's
prices, an unfolded A4 letter
(Large Letter) costs 50% more to
send than one that is folded and
inserted into a DL or C5 envelope.
Businesses that send high volumes
of Large Letters can make big
savings simply by using smaller
envelopes.



Top Tips A complete process
• Fold A4 letters
The price of a stamp or frank is the most visible indicator of mailing costs, but
into DL or C5 it is just one component of total expenditure, alongside equipment and labour
envelopes to avoid costs. Mailing is a complete process encompassing mail preparation (how a
paying more for a letter is printed, enclosed and addressed); outgoing mail (how it is paid for
and delivered to the customer); and incoming mail (how mail is opened and
large letter.
distributed). In order to reduce total mailing costs, it is necessary to consider
• Automate time-
all three stages of the mailing process and how they interact. For example, the
consuming decision to acquire a folder-inserter to speed up an invoice run and reduce labour
costs can also reduce postage costs by folding A4 letters into DL or C5 envelopes.
tasks, such as
folding, collating
and inserting 1. Mail Preparation
documents. The secret to lower mailing costs is to prepare mail properly to take advantage of
• Print directly onto
the most economical rates and to eliminate the waste and expense of unnecessary
mailings. Mailing solutions and machinery that can help you achieve this include:
envelopes instead
of using labels. Addressing Software. Good quality data is a pre-requisite for efficient,
economical postal communications. Use addressing software such as Neopost’s
• Combine mailings
Bulk Mailer to ensure that all addresses are complete, spelt correctly and comply
to the same with Royal Mail's database of Postal Address Files (PAF). Correct addressing will
individual in a remove the expense of undeliverable mail and enable you to qualify for maximum
single envelope. discounts. Bulk Mailer can also be used to de-duplicate databases.
Folder-inserters: These useful time-savers speed up mailings by automatically
• Aggregate postal

folding and inserting letters and supporting documents into envelopes and sealing
volumes across them ready for postage at least 13 times faster than by hand. Cost savings come
departments to from lower mailing costs (if folding an A4 letter into a DL or C5 envelope) and
maximise postal from reduced labour costs. Our calculations show that a folder-inserter with a
discounts. monthly rental of £20 could save a company that sends 3,000 items a month as
much as £1,920 a year in labour costs, on the basis that it costs 6p per item to
• Make sure your
fold and insert letters manually (100 items per hour @ £6 per hour).
address databases
Envelope printers: High-speed envelope printers print addresses, return
are compliant addresses and PPI marks (postage paid impressions) in a format that qualifies for
with Royal Mail postal discounts and remove the need to buy labels or pay for and keep a stock
Postal Address of over-printed envelopes. They can also be used to add personalised marketing
Files (PAF) to cut messages in colour or black and white.
waste and qualify Output Management Software. Businesses can save time and costs by using
for Royal Mail output management software to streamline mailings. Maximise postal savings
discounts. by batch printing and sorting print jobs; combine multiple letters to the same
address in a single envelope; print barcodes and optical marks on letters for fully
• Where appropriate
automated, customised workflows; and create templates to remove the expense
consider of pre-printed forms and stationery.
substituting post
for electronic
communications.



CASE STUDY
A better service with PrintMachine
Greeting cards publisher and bespoke envelope manufacturer, the Regent
Group has transformed the production of invoices and statements by
installing Neopost's PrintMachine output management software in tandem
with a DS-70 folder-inserter.
Each month the group produces 2,500 items of mail. This, as Associate
Director of Finance Karen England explains, used to be a slow and expensive
process. Before we worked with Neopost, we used 4-part stationery for our
invoices, credit and delivery notes, and 2-part stationery for our statements.
These were printed on a dot matrix printer and formatted to a bespoke size.
Once printed, the documents were manually inserted into envelopes.
Today, documents are designed, distributed and archived using PrintMachine
software; output on standard office laser printers; and prepared for mailing
on an automatic folder-inserter.
We now use PrintMachine software to print all our customer invoices,
delivery notes and statements, using our specified layout. The DS-70 then
collates the documents into envelopes. Cost savings were possible as
we have streamlined and automated our processes, whilst removing the
requirement for expensive 4-part stationery, explains Karen.
For Regent's Head of IT, Rob Seaward, another of PrintMachine's benefits
is improved customer service. One of the most successful areas for us
was PrintMachine's ability to store the image in different areas on the
server. Stored images are transferred to our intranet overnight and made
accessible to the Customer Services Department. This has improved the
speed and efficiency with which we answer customer queries. Images can
be viewed, emailed or printed, removing the reliance on finding a hard copy
of the original, which had been an excessively manual process, he said.



Top Tips 2. Outgoing Mail
Postage accounts for the lion's share of mailing costs and offers the greatest
• A franking

scope for savings. Customers can cut costs by sending mail via an alternative mail
machine pays
provider or by using franking machines to maximise savings offered by Royal Mail.
for itself when
Franking machines. Franking is now an economical option for businesses
sending as few as
sending as few as 5 letters a day – based purely on the cost of stamps – with
5 items a day.
further discounts for volume users (see page 4). But there are other areas in
• Where appropriate
which franking has a direct or indirect bearing on costs. These include:
send letters by • Time saved by not having to queue for stamps in the Post Office – franking

Second Class machines can be re-credited online at any time of day or night;

post. It is 40% • Applying the right postage to letters instead of over-stamping;

cheaper than • Easier compliance with the requirements of Royal Mail discount schemes;

First Class (if • Less wasteful mailings – print your business address on envelopes and Royal

franking) and still Mail will return undeliverable mail so that you can update your database;
85% of letters are • Integrated accounting features that let you track, monitor and charge-back

postal costs; and
delivered the next
working day. • Simpler management of VAT, which is now applied to certain postal services,

including Special Delivery and those that attract volume discounts such as
• Print a return
Business Mail. Franking machines with smart technology frank at VAT-inclusive
address on prices and produce VAT invoices to aid reclaiming.
envelopes. Royal Accounting Software. Businesses with more sophisticated needs can track
Mail will return postal expenditure across multiple sites using specialist mail accounting packages.
undelivered mail By giving managers a view of postal expenditure across an enterprise, solutions
free of charge like Neopost Mail Accounting Software (MAS) make it possible to identify where
efficiencies and savings can be made.
so that you can
update your
database. CASE STUDY
• Investigate
Franking delivers 12% refund
alternative mail
Studio lighting specialist The Flash Centre has cut postage costs by 12%
providers.
since installing a Neopost franking machine to process the 4,500 parcels and
• Consider using
items of mail it sends each month. The Flash Centre was a long-time user of
hybrid mail to franking machines, but until it switched to Neopost it wasn't making the most
of the savings on offer, explains Managing Director Chris Whittle: After a
outsource the
month of using the new machine, we received a 12% refund from Royal Mail
printing and in keeping with their volume-related discounts scheme – something that we
processing of were completely unaware of before switching to Neopost. And the best thing
mailings. is that since then we have continued to receive these discounts which have
had a positive impact on our postal budget.”



3. Incoming Mail Top Tips
Most savings come from the preparation and despatch of outgoing mail. Yet, it • nalyse incoming
A
is also possible to cut costs from the processing of incoming mail, principally mail processes
by streamlining processes for opening and delivering post. The main benefit is to identify
improved productivity, but in larger organisations there may be the opportunity bottlenecks.
to reduce staffing levels and associated costs.
• se automatic
U
Letter openers: Automatic letter openers that slit open envelopes and in some
cases remove the contents are a valuable productivity tool in busy mailrooms. letter openers to
With some models capable of opening hundreds of envelopes a minute, they speed up mail
ensure that contents reach their destination inside the organisation more quickly processing.
for more productive workflows and improved cashflow.
• n mail-intensive
I
Mail tracking: Track Trace systems for incoming mail allow organisations to environments,
follow an item from the point at which it enters an organisations to the moment
consider an
it is delivered to the intended recipient. Incoming items are scanned and logged
onto the system and the recipient sent an email advising them that it has automatic mail
been delivered. Systems like Neopost's neoTrak can also be used to follow the extraction system
movement of files, hardware assets and other items around an organisation. to free up staff for
Mail digitisation: Documents and incoming mail can be converted into digital other tasks.
documents to reduce storage, speed up internal communication, manage
• can and
S
processing in a defined workflow and facilitiate retrieval.
log incoming
packages.
CASE STUDY • utomatically
A
Homeserve saves £35,000 through faster letter opening alert staff when
a package has
Insurance company Homeserve estimates that it is saving £35,000 a year
been delivered for
through faster mail processing after installing three Neopost IM-75 letter
openers to help open the 7,500 items of mail it receives each day. them.

The overall man hours spent on processing mail has dropped daily by 10
hours equating to a reduction of over 200 man hours a month!, explains
Data Processing Manager Josie Bates. As a result of using the three IM-75s,
we can process our incoming mail 33% per cent faster equating to a saving
of over £35,000 per year.
Homeserve had been using a basic letter opener to open incoming general
correspondence, applications and renewals. Once the envelopes had been
slit open on one side, general correspondence (500 envelopes per day) was
passed to 12 staff in the main office who manually extracted the contents
for scanning. The remaining 7,000 insurance applications and renewals were
processed at a rate of 300 items per hour. In total, mailroom and office staff
were taking 30 man hours a day to process 7,500 envelopes at a cost of
£4,428 per month.
The installation of three IM-75s that
open envelopes on two sides and extract
contents in a single process has reduced
the time mailroom staff spend processing
general correspondence and speeded up the
processing of applications to 700 items an
hours, reducing time spent on processing
mail by 10 man hours a day or 200 hours
a month.



Why Neopost
Neopost is Europe’s number one supplier of mailing solutions, with annual sales of
€1 billion in 2011. Its products and services are sold in more than 90 countries,
and the Group has become a key player in the markets for mailroom equipment
and logistics solutions.
Neopost supplies advanced solutions for franking, folding/inserting, addressing,
logistics management and traceability, as well as a full range of services, including
consultancy, maintenance and finance.
Its product range meets the needs of all mail users, from micro-businesses to the
largest enterprises and public sector organisations, and covers the three main
areas of mailroom activity: Incoming Mail; Mail Preparation; and Outgoing Mail.
Neopost is Neopost products are designed to work together and can be integrated into
complete mail processing systems that address the specific needs of individual
Europe’s customers.

number one
Mail Preparation
supplier
Address Management. Neopost Bulk Mailer is a complete address management
of mailing solution that can increase mail deliverability by cleaning address databases and
maximise Royal Mail discounts by correctly formatting mail.
solutions, with
Output Management. Neopost has two solutions for automating document
annual sales of creation, distribution and dispatch, the entry-level OMS-100 for non-technical
users and PrintMachine for larger volume applications. Both automatically
€1 billion process mailings to minimise manual sorting, for example by batch printing
and grouping documents destined for the same address in the same envelope.
in 2011. Other useful features include the ability to print OMR marks and barcodes that
encode instructions for other processes, such as folding and inserting. The
intelligence these marks add to documents ensures accurate mailings (essential
for confidential information), facilitates varied content by addressee and simplifies
processing of returned mail.
Folding and Inserting Machines. Neopost's DS range of Folder Inserters
includes models to suit any size business, from the desktop DS-35, with an
insertion speed of up to 1,350 envelopes per hour, to the DS-1200 that can fill up
to 12,000 envelopes per hour and handle inserts from flyers and business reply
envelopes to thick booklets and CDs.

Outgoing Mail
Franking Machines. Neopost's IS series of franking machines ranges from the
entry-level AutoStamp2 with integrated weighing scale and LAN connectivity to
the IS-6000 with mixed mail feeding, dynamic scale, power conveyor and full
colour touch-screen.
Mail Accounting. Neopost Mail Accounting Software is the next step up from a
franking machine's built-in accounting features. The software collects and reports
on data from multiple machines in multiple locations. As well as tracking all postal
expenditure, it lets you set budgets and will send out alerts if expenditure exceeds
limits.



Incoming Mail
Letter openers. Neopost's five-strong IM series ranges from the IM-16 with
opening speeds of 300 letters per minute, to the production mail IM-75, which
opens envelopes and extracts the contents.
Document Scanners. Neopost mail extraction systems can be combined with
document scanners and software solutions that scan, archive and distribute
incoming documents electronically.
Mail tracking. neoTrak automated parcel receiving software tracks packages from
drop-off at the post room or reception to delivery to a named recipient. neoTrak
can also track files, equipment, office supplies, computers and other equipment
around a building.
Mail Security Scanners. Neopost's range includes scanners for screening
bundles of mail and small packages for suspect items and security threats such as
letter bombs and parcels.
Address Management. Neopost Return Mail Manager lets you scan undeliverable
mail and keep your databases up-to-date

What Next?
To find out how Neopost can help you cut mailing costs, please call us
on 0800 731 1334 quoting WP2.

CASE STUDY
Neopost provides complete mailroom solution for Circle
Circle is one of the UK’s leading providers of affordable housing, managing
more than 63,000 homes for around 200,000 people. Each day, Circle mails
an average of 1,000 letters to tenants and contractors.
When the contract on Circle's franking machine came up for renewal,
Facilities Officer Peter Morgan took the opportunity to upgrade Circle's
mailroom equipment with new models recommended by Neopost.
These include the compact DS-62 folder-inserter, which
collates, folds and inserts documents into envelopes
and seals and stacks them ready for franking; and
the IS-480 mailing system, which seals and franks
envelopes at a rate of 150 letters per minute. Because
the IS-480 handles mixed batches, there is no need
manually to sort mail by size, thickness and weight
prior to franking.
“The IS-480 has saved countless hours which used to
be spent managing the workflow of our old franking
machine,” said Peter. “It can also be configured to
prepare mail so that it will qualify for Royal Mail’s
Cleanmail® Advance (CMA) service which could save
us up to 16% on the cost of our postage.”
Overall Peter is very happy with the service and solutions provided by
Neopost and the cost savings they are bringing about. “Our new equipment
has saved countless man hours and will soon provide us with sizeable
discounts on our postage costs,” he said.



Neopost House
South Street
Romford
Essex
RM1 2AR

Tel: 0800 731 1334
Fax: 01708 726361
www.neopost.co.uk.


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