Uncovering the Hidden Cost of Returned Mail

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Reprocessing returned mail is expensive and unnecessary.

It's no secret that managers of high volume print and mail finishing centers are extremely cost conscious. You can ask them virtually any question related to processing outgoing mail and get detailed data on the key cost factors of postage, paper, envelopes, printing, labor, overtime and overhead.

But ask those same managers about the cost of reprocessing returned mail and you'll often get a vague "Well, it's a cost of doing business," or "There's nothing we can do about it."

The reality is much different. The cost of reprocessing returned mail is

substantial for almost any organization. Those costs are relatively easy to identify, if you know where to look. And the majority of the costs are avoidable, particularly if managers employ a total quality approach to eliminate the errors -- and the need for rework -- before they occur.

Identifying the costs. The most obvious costs in reprocessing returned mail are similar to those incurred in processing mail for the first time. These hard costs center on the concrete expenses of postage, paper, envelopes and printing, and labor.

Additionally, returned mail arrives erratically, in varying quantities and without advance notice. So efficiencies are difficult to achieve and the costs for reprocessing are frequently higher than those incurred in processing an equivalent number of first-time mail pieces.

Where to start? First, consider the entire cost of the original mail piece. Since the returned mail piece has not yet been delivered as intended, the entire cost of processing and mailing has been lost.

Next, consider the cost of any return service provided by the U.S. Postal Service. If the mail piece has been returned by the USPS, the mailer has now paid twice -- to have it delivered and returned -- and still has an undelivered mail piece. The entire mailing process must begin again.

Now consider the rework involved in reprocessing the returned mail. There

is the cost of labor for manually handling the returned mail and sorting it for eventual reprocessing. This cost is derived by multiplying the hourly cost of labor by the amount of time required to perform the task.

Now add in the cost of updating the master file. Again, this is largely a labor cost. The total varies according to the volume of returned mail that must be reprocessed.

Next is the cost of printing, paper and envelopes to regenerate and assemble a duplicate message, statement or invoice. If a new message is not generated, add in the cost of labor for manually retrieving the original statement and inserting it into a newly addressed envelope.

Postage is the next major cost. If the regenerated mail piece can be commingled with the regular mail stream, the mailer might be able to use a presort discount. Otherwise, the volume and density of regenerated mail might be inadequate and the mail piece would require the full cost of postage.

Soft costs can be significant. The hard costs alone should be sufficient motivation for most mail center managers to eliminate the problem of returned mail. But the soft costs of returned mail can be even more significant, especially for the enterprise as a whole.

The most tangible soft cost involves the delay in the receipt of revenue. If the original mail piece contained a statement or an invoice that requires payment, then the enterprise is not receiving that payment in a timely manner. And that means cash flow is being negatively impacted.

The delay in receipt of a bill might trigger a subsequent customer service cost. The customer who did not receive the statement as expected might call a customer service center to inquire -- or complain -- about the delay.

Or the delay in delivery and subsequent delay in payment may cause a customer to exceed a credit limit, resulting in embarrassment and anger when the customer tries to make additional purchases. And once customers are lost, it is very hard to get them back. In fact, it is far cheaper to keep a customer than it is to acquire a new one or re-acquire a lost one.

Delays lead to lost sales. There is also the cost of lost sales. Admittedly, it is hard to quantify the true cost of a lost sale or a lost customer. But the costs are real. For example, customers who don't receive statements also don't receive inserts, catalogs and other promotional and marketing-related mailings, which means that additional or incremental sales can be lost.

Consider the actual example of a customer who moves to a new residence. As

anyone who has ever moved knows, an immense amount of buying can occur when

people relocate: Home decorations and furnishings, appliances, lawn and garden care equipment, clothing, books, light bulbs, even insurance are often purchased.

In fact, many people liquidate investments or refinance debt when changing

residences, so even banking and financial services firms can be affected by a move.

For most businesses, a move is precisely the best time to stay in touch with customers. Yet for many high volume mailers, a move is precisely when they lose contact with customers; or they incur unnecessary extra costs and added delays in trying to reestablish contact with customers.

How much do all these costs add up to? Every mailer is different, and the total cost of dealing with returned mail will depend on each mailer's unique circumstances.

But one Midwest financial investment firm recently examined the total work

involved in receiving and sorting returned mail, manually updating customer address information, recreating and reprocessing individual mail pieces and remailing with the correct address.

They discovered the total hard costs to be in excess of $3 million per year. And that does not include the soft costs associated with the tangible or intangible impacts the delay in delivery caused to customer relations.

Because Americans like to move, and are unlikely to change that habit anytime soon, high volume mailers should look for ways to eliminate poor quality customer addresses and the costs associated with correcting those addresses.

If they were updated and correct prior to mailing, the mail would not be returned and the mailer would not incur the substantial costs of reprocessing. Plus, the mail would reach the intended recipients sooner, which is the ultimate goal of any mailing.

Like a zero defects production environment, the best method to assure prompt, accurate delivery is to eliminate address errors before they occur, which also eliminates the need to take corrective action.

The USPS-approved method that most resembles a zero defect approach is

called FASTforward for Mailing List Correction. This system relies on the latest six months of USPS change of address data, can reside at the mailer's site for exceptional ease of use, and allows mailers to electronically interrogate and automatically update their customer address list before a mailing goes out.

The result? No disruption to the business, no delay in processing, no unnecessary rework and the mailing is as up-to-date as practical.

With nearly one in every five Americans changing their address every year, high volume mailers are faced with a continuing need to update customer address lists. They can either do it before a mailing is prepared -- and save a huge amount in time, money and rework -- or they can continually correct the problem after each mailing.

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