Sunday, May 6, 2012

BIG’s Blog: Three Part Series on the Future of Fundraising – Part One

Why Postal Mail Is Failing

It is my job to talk to nonprofit fundraising organizations that use direct mail as a significant part of their fundraising mix. Over the last year, I have probably talked to close to 100 organizations, and they run the spectrum of small, medium and large.

According to my records, this is how it breaks out:  About 40% are down again in topline revenue over their previous year. And their previous year was down from the year before. Their last good year was 2005.

Another 40% are even on their topline revenue, but because their margins are tighter, they are netting less revenue. And interestingly, their last good year was 2005.

20% are still growing their topline. But, like the other two groups, their margins are collapsing and their net revenue has been shrinking. And you guessed it, they look back on 2005 as their last good year.

No doubt your organization falls into one of those three groups. And if you somehow believe your organization is different, you need to have a serious conversation with your accountant, controller, or CPA. Drill into the numbers for the last four years.

But here is the most important thing you need to hear: “It’s not your fault.”

Way too many direct mail fundraisers think it is somehow their fault that the numbers are declining. You and your team are probably excellent direct marketing professionals. The problem is that the world has shifted away from analog media of which paper-and-ink direct mail is a part. For a lot of reasons we will share later, direct mail is in a cyclical terminal decline. Ask yourself, “What could reverse this trend?” Unfortunately, there is nothing that will.

Your direct mail fundraising group has no control over whether the U.S. Postal Service stays in business or goes out of business or changes the way they do business or raises rates. I personally believe that the Post Office will continue in business for the next ten years. But just because the Post Office stays in business doesn’t mean that your direct mail programs will generate net dollars to your organization.

The print and ink world of direct mail is scalable. This means that the more mail you produce, the lower the cost per unit. This is called the economies of scale. But as scale (volume) shrinks, the economies of scale begin to work against you. If today your organization is profitably mailing one million pieces of mail and next year you can only mail 700,000 pieces profitably, the cost per piece goes up. The postal service sees their volume declining and as a monopoly they raise rates. This is a cycle that keeps going the wrong direction until you cannot mail any program profitably.

But what are the drivers that are keeping you from mailing more pieces of mail besides costs?

There are two major drivers: 1) Competition for direct mail and 2) Shifts in societal communication behavior.

For 200+ years the U.S. Postal Service had a monopoly on the distribution of written personal and business communication. The Internet changed that, or, more specifically, email changed that. And what is the cost of email? It was only a matter of time before the print and ink distribution platform of mail was supplanted by electronic email. And where is innovation going on? That’s right, in the Internet-based world.

The second driver was really a consequence of the first. As the accessibility of electronic (digital) communications grew, people’s behavior changed. And today, virtually all generational cohorts are using less and less postal mail.

What could change theses trends? Nothing.

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