Wade Armstrong

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Startup Postage: Endicia vs. Stamps vs. Business Reply

Posted Thursday January 10, 2008 in Startup Lessons

At my company, we send out a moderate amount of mail. There’s the bills, of course, and also reply envelopes to help get feedback from customers. Obviously, keeping mailing costs down is key, but so is having convenient access to postage and minimizing the amount of work I have to do (after all, there’s only one of me, and I have a lot more than just sending mail on my plate). After trying out some options, I decided to stick with plain old-fashioned stamps, bought at the USPS Web site.

Cost Components

As with any expenditure, it’s important to look at all the pieces that end up contributing to costs. For postage, there is:

• Startup costs, including memberships and investment in hardware
• Cost of capital, if you’re buying a lot of postage in advance of use (for instance, the Post Office will be happy to sell you 10,000 stamps for $4100, quite a lot of money to put out there at once)
• Convenience cost, which includes how easy it is to get and use the stamps (for instance, it’s not convenient to drive to the post office to buy stamps every time you need new ones)

The Options

I looked at four vendors:

• The USPS, by buying stamps on their Web site
• USPS Business Reply mail
• Pitney-Bowes, the well-known (and, I believe, original) purveyor of postage meters
• Endicia, which sells stamps online

Costs

Buying stamps from the USPS is cheap; shipping is just $1. While you probably don’t want that 10,000 stamp coil, a few 100-stamp coils are easy enough to work with. Of course, you do get stuck laying out all of the costs out up front. Assuming you’re putting this all on your credit card at 17%, you’ll be spending $0.57/month per $41 coil of 100 stamps until you pay that big debt down (that’s a bit more than a penny a stamp). To match the $10 monthly fee that Endicia charges for stamps-on-demand, you’d need to buy 17 books of stamps a month.

Pitney Bowes is by far the most expensive. To start, their cheapest plan is $19.99/month, although you do get a whole meter for that price. While you pay only when you meter a mailpiece, when you take into account supply costs you’re paying about $0.52 for a $0.41 stamp with their entry-level system

Endicia is an attractive service with the low monthly fee of $9.99 and no equipment costs for the entry-level product, with which you can print stamps onto Endicia’s special stickers via your laser or label printer. For the laser-printer product, you buy sheets that fit 25 stamps and end up paying $0.03/stamp. That’s still 3 times the USPS’s delivery rates, and it turns out that you never break even.

Business Reply is theoretically the most cost-effective, since the money isn’t deducted from your account until the imprinted mailpiece is sent; however, this means that this service can only be used for incoming, not outgoing, mail. Since most of my mail is incoming customer responses, that makes Business Reply relevant for me. There’s a $175 start-up fee, which, for convenience, I’ve amortized over a year here. There’s also a $550 fee when you get over 950 pieces per year.

I made a pretty graph to compare all the possibilities:

As you can see, the result is pretty surprising: ordering stamps is the cheapest option! Even assuming a 17% annual interest rate on the money you spend on stamps, buying the stamps outright is the cheapest option. Of course, if you assume you’ll have only 50% of mailpieces returned to you, then the math is a little different:

There, Business Reply becomes competitive at just under 300 pieces/month (obviously, the lower your response rate, the faster Business reply is competitive). We’re not at that volume yet, so buying stamps online is the best choice for us. It’s amazing how non-competitive meters are in this simple analysis!