First-Class Struggle for Charities

Soaring postal rates put pressure on fund-raising solicitations

Disabled American Veterans expects its annual postage bill to rise by about $1-million when the

U.S. Postal Service’s third rate increase in 18 months takes effect June 30. The Cold Spring, Ky., organization sends about 60 million fund-raising appeals each year, and postage costs represent roughly 40 percent of its direct-mail budget.

Nonetheless, Max Hart, who oversees direct mail for the organization, says Disabled American Veterans has no plans to reduce the volume of mailings, in large part because the charity says the mail is still the most cost-effective way to find new donors. “We’ve not been able to make any medium work other than direct mail,” he says. The organization raised $95-million through the mail last year.

Many other charities find themselves in the same predicament, concerned about the escalating costs of direct mail yet hard-pressed to find good alternatives. Direct-mail solicitations garnered $41-billion for charities in 2001, according to the Direct Marketing Association.

The recent postal-rate increases — the June increase will raise direct-mail costs for charities by an average of 6.7 percent, on top of two increases last year of 4.8 percent and 2 percent — are forcing some charities to cut back on their mailings despite concerns that such reductions could cripple their ability to raise money. Many charities are scrambling to find ways to offset rising postal costs. At the same time, they are experimenting with e-mail and other methods of reaching donors as a long-term way to offset frequent increases in postal rates.

The U.S. Postal Service plans to increase standard nonprofit letter rates from 15.8 cents to 16.5 cents, an increase of 4.4 percent, and rates for periodicals will increase by an average of 10 percent. Many mail experts expect the postal service to propose another increase, perhaps even larger, in October. The agency, which has been hurt by the terrorist and anthrax attacks, as well as the slowing economy, is anticipating that it will lose $3-billion this year, even with the June rate increase.

“Prospecting for new donors was a heck of a lot easier a few years ago, before the Post Office started this death spiral,” says Neal Denton, executive director of the Alliance of Nonprofit Mailers in Washington, a coalition of nonprofit organizations. The Postal Service’s problems are expected to worsen, he says, because as the service continues to raise rates, it loses mail volume, prompting the need for even more rate increases.

Beyond the increase in postage costs, many charities say direct mail has become less effective for them — in large part because so many organizations are using the mail to solicit gifts. “Thirty years ago, the average household got 200-300 pieces of direct mail a year, a third from nonprofits,” says Raymond J. Grace, a direct-mail consultant in Crofton, Md. “Today, it’s probably 1,500 pieces per household. That’s 500 solicitations instead of 100.” Mailings have continued to rise at a rapid pace in recent years. Nonprofit groups mailed 14.4 billion pieces of mail last year, up from 12.2 billion pieces in 1995, according to the Postal Service.

In recent years, postal rates have risen more frequently, although the percentage increases have tended to be smaller than some of the double-digit increases of the past, when rates were changed every three or so years. While each rate increase has been less visible, the more frequent increases have been gradually eating into charity budgets.

The most recent increase is particularly hard for some organizations to respond to since it will take effect less than a year after it was proposed. Typically, the Postal Service allows an extended period for comments from the public when a rate increase is proposed, effectively giving groups at least a year’s notice of the next rise. But the Postal Service said the terrorist and anthrax attacks caused such significant problems that it needed to raise rates as soon as possible.

Major Costs

Postage is among the biggest expenses involved in soliciting a donor, ranging from 25 to 50 percent of fund-raising costs for charities that send a lot of mail, fund-raising experts say.

Many groups are examining whether to cut back on their most expensive mail: letters to potential new donors. Direct-mail experts estimate that charities spend $1 to $1.25 for every dollar of revenue they earn from new donors. Most organizations feel that the cost is usually worth it because such donors help a charity grow and can sometimes be converted into longtime contributors who make large or consistent contributions.

Experts say cutting back on such solicitations could lead in the long term to a shrinking pool of donors and a decline in the direct-mail program that could be irreversible.

“One way to cut costs is you don’t go after people who haven’t given you money, or who haven’t given much in a long time,” says Lee M. Cassidy, executive director of the Direct Marketing Association Nonprofit Federation. “But if you do that, you’re mortgaging your future.”

Still, faced with cutting mail or cutting services, some charities see little choice but to reduce solicitations to new donors. Naromi Ganesh, associate director for annual giving at Catholic Charities of the Archdiocese of New York, says that her organization spends $140,000 on postage a year — about 27 percent of its direct-mail budget — and can’t afford any more. The charity hopes to hold its mailing expenses steady by sending fewer letters to potential new donors this year. “It’s a short-term strategy,” she says. “We’ll have to think of something else next year.”

Seeking Efficiencies

Charities that believe they cannot cut back on the mail they send without hurting their organizations are engaged in a juggling act, trying to find efficiencies in their mail operations or other revenue elsewhere.

Some organizations are taking advantage of bar coding and other discounts that the Postal Service offers, although many charities took such steps several years ago in response to previous postal-rate increases.

The problem of increased costs is especially acute for groups that publish magazines, which are subject to the steepest postal-rate increase. Thomas Fulgham, editor in chief of the magazine that Ducks Unlimited sends to its 650,000 members, says the organization is bracing for a $100,000 increase in the cost of mailing the magazine. The Memphis group, dedicated to preserving waterfowl and wetlands, sends its magazine to members six times a year. The organization “is fully behind the magazine, and wants to preserve its quality,” Mr. Fulgham says. To absorb the additional costs, the magazine will try to sell additional advertising and realize savings through further computerization of its production process. “In previous years when rates went up, we looked at raising ad rates, but this is just not an environment where we can do that right now,” says Mr. Fulgham, referring to the lagging economy.

Consumers Union, which publishes Consumer Reports and three other magazines, is facing a similar situation. “Postage is our second-largest expense,” says Louis Milani, senior director for business affairs and strategic marketing. The nonprofit group in Yonkers, N.Y., is still figuring out how the planned increase will affect its bottom line. “We don’t have advertising, so it’s difficult,” he says. “In some cases in the past, we’ve raised the price of the product. But we’re in a climate now where it’s very hard to pass on price increases.”

Reducing Size of Mailings

Charities that have not done so already are looking at ways to reduce the size and weight of mailings to save on postage and production costs. But many charities, such as Girls and Boys Town, in Boys Town, Neb., already have taken such steps in recent years. “Our acquisition package is a letter, a small Christmas card we ask them to mail back to the kids, some Christmas stamps, a reply device, and a business reply envelope,” says Bernie Devlin, director of public appeals. “There’s not a lot of fluff in the package.”

Nonprofit groups need to make sure that reductions in their mail packages don’t backfire and hurt a mailing’s effectiveness, experts advise. Scott VanderLey, a marketing manager at World Vision, a relief organization in Federal Way, Wash., says the charity has no plans to cut back on its mailings, which have frequently won national awards for their creativity and effectiveness. One of the international relief group’s most successful packages encouraged donors to help rebuild in Honduras after an earthquake. Donors first received a four-color postcard, then a videotape of the earthquake damage, and finally a letter from the head of World Vision Honduras. The appeal, which cost $85,000, raised more than $800,000. “A cheap package might not cost too much, but if it doesn’t generate revenue from donors, it’s not a good decision. A fuller package might be more cost-effective,” says Mr. VanderLey.

Even so, WorldVision is looking for other ways to cut costs. It is working with companies that run book- and music-buying clubs to include its fund-raising appeals in their shipments to customers. World Vision pays a flat rate per thousand for such inclusions, which can be highly specific, focused on buyers of works by a specific author, for example.

Internet Appeals

Many groups hope the Internet will one day become the best way to solicit donors, but today e-mail is still a long way from replacing direct mail. “It’s very much in its infancy as a fund-raising vehicle,” says Vivianne L. Potter, a fund raiser for the human-rights group Amnesty International USA. Amnesty now routinely asks for e-mail addresses in all communications with donors, she says, which has netted it online addresses for about 5 percent of its contributors. It expects to add another 5 percent as responses come in from a recent survey mailed to donors asking about their use of computers and the Internet.

For now, however, the group’s best use of the Internet is for advocacy, Ms. Potter says. “We’re having a fair amount of success urging people to take action, to write to their congressman or e-mail someone who is perpetrating human-rights abuses,” she says. Another benefit: It helps build a database of likely new donors. People who contribute to the online advocacy work are far more likely to become donors than others, she says.

To cope with the current postage-rate increases, Amnesty may decide to cut back on its testing of new mailings, Ms. Potter says. Charities continually conduct such testing, involving small tweaks that often are barely noticeable to recipients, such as getting rid of a sticker on a reply card, to see whether it makes a difference in the number of people who give money. Those test mailings are more expensive because they involve small batches of mail. But like the choices other charities have made, reducing test mailings is not without its price. “It will limit our ability to make mailings more effective,” Ms. Potter says.

Delivering Its Own Mail

Connecticut Children’s Medical Center, in Hartford, is hoping to cut costs by asking its corporate donors to let it communicate with their employees through mediums such as internal newsletters.

The medical center may also have found a solution to postal increases: delivering its own mail.

The hospital used to send out large packets of materials to local stores, which sponsored “balloon drives,” through which customers are asked for a donation at the checkout counter in exchange for having their names and donation amounts printed on a balloon-shaped piece of paper and displayed in the store. But the charity has started to deliver the paper balloons, banners, and posters to the stores itself instead of sending them through the mail.

“We used to ship them, but postal rates have gotten to the point where, at 36 cents a mile, even if you have to drive 150 miles to deliver things, you’ve saved a lot of money,” says Sondra Dellaripa, director of corporate and foundation relations. “It has also paid off in face-to-face meetings with the people we work with.”

Even with such approaches, however, many fund raisers believe they will have to find ways to make postal mail affordable for many years to come. “We’re going to have to do something to shore up the national mail-delivery network,” says Mr. Denton of the Alliance of Nonprofit Mailers. Nonprofit groups, he says, must persuade federal officials to take steps to help the postal service out of its financial troubles. “We need some leadership, to recognize that the Postal Service cannot go belly up,” he says. “Charities need to become engaged in the process.”