Fundraisers still have to build in more time
Leaders at Shriners Hospitals for Children felt the pinch of paper supply shortages and price increases last year while preparing to celebrate the organization’s 100th anniversary. They determined it would be less expensive to print a special commemorative gift publication in Spain and have the bound copies shipped to North America rather than have them printed stateside.
It wasn’t a perfect solution. Doing so meant a production delay to spring of this year. It prevented including the edition as gifts for high-value donors as part of the 2022 holiday fundraising campaign.
It could have been worse.
“We were fortunate enough that we saw ahead to what was coming with the supply backlog in 2020 and worked with the firm that produces our direct marketing materials to pre-order a lot of the paper and other materials we use,” said Stuart Sullivan, chief philanthropy officer for Shriners Hospitals for Children, headquartered in Tampa, Florida.
“For the most part, we did not experience too many of the delays and that sort of thing. But we did have to change out some of our premiums from things that couldn’t be produced in favor of other things that we could produce instead,” said Sullivan.
At a time when individual donors are declining, order backlogs and price increases resulting from scarcity of paper and other supplies have combined with postage rate increases to put a crimp in direct response mail. The resultant perfect storm has ratcheted up pressure on marketers to justify the increased costs by squeezing every last dollar out of solicitations. It has also forced fundraisers to and plan way ahead.
Such is the lingering impact of supply chain disruptions following the COVID-19 pandemic. There were labor shortages, factory shutdowns, port bottlenecks and buyer panic during 2020 that combined to produce a run on many common household goods including bathroom tissue and other paper-based products.
Envelope and mailing label shortages were made worse by a 2021-2022 strike at the Finland factory that harnesses that country’s abundant forest resources to supply much of the world’s paper products, forcing many fundraisers to turn to suppliers in South America and elsewhere. A railroad labor dispute and threatened strike by U.S. freight rail workers shortly before Christmas last year led to sporadic shipment delays and more supply chain woes. As this article went to press, a potential strike by 340,000 UPS workers across the country threatened to throw one more monkey wrench into supply chains.
Paper mills had been consolidating and shifting operations overseas even before the pandemic and its attendant disruptions, resulting in longer shipping and lead times on orders. “But when paper mills closed during the pandemic, it took a long time to ramp back up to full production,” said Amy Warren, assistant vice president for print solutions at fundraising agency Pursuant in Dallas.
It all snowballed when manufacturers sought to make up for lost time and boost profits by shifting production from typical paper stocks to other operations driven by the surge in online shopping. “Many manufacturers started putting resources into producing other things like cardboard and corrugated boxes because of everybody who was at home ordering stuff off Amazon. All of that really started to limit certain stocks of paper that we needed for direct mail,” said Perry Moore, executive vice president of fundraising firm RKD Group in Richardson, Texas.
Most of the supply chain bottlenecks appear to be receding, the surest sign of which Moore said is the easing of order allocation limits that many paper mills had begun enforcing to prevent hoarding during the height of the supply crunch. Specialty items like colored and coated paper are still in short supply, however. Glue for mailing labels and stickers has also become tougher to get.
All of these items have become more expensive. “The big price increases happened during COVID due to high demand, but they’re not going back,” Moore said. “They’ve got those high prices now and they’re not going to decrease them.”
” We did have to change out some of our premiums from things that couldn’t be produced. “
Direct mail production costs post- COVID have gone up between 15% and 25% from what they were pre-COVID, according to Richard Geiger, senior vice president of Data Axle Nonprofit in Dallas. These price increases have changed the calculus of direct mail and forced fundraisers to rethink how they budget for it. “Instead of building a budget around segments and outcomes, many now have to build their budgets around how much the glue and paper are going to cost which is kind of a backwards way of looking at it,” Geiger said.
Fundraisers have learned a hard lesson about the exposure to market shocks they risk by continuing to put off supply orders to the last minute. “The industry previously operated in a ‘just in time’ process, meaning excess inventories were not stocked and paper and other supplies were ordered as needed for the immediate timeframe and current jobs only,” said Warren.
The Humane Society of the United States (HSUS) has been similarly impacted, according to Andre Temoney, senior director of production at HSUS in Washington, D.C. “Our biggest shortage item was paper availability that was exacerbated due to consolidated paper mills and allocation restrictions imposed by suppliers during and immediately after COVID restrictions were lifted,” Temoney said.
Digital fundraising has been the low-hanging fruit that many have reached for since these issues emerged. Having a multitude of fundraising channels in the digital space has blunted some of the impact of supply chain and cost issues and allowed HSUS to continue generating the resources that go into its animal welfare work, according to Temoney.
Counterintuitively, the value of direct mail has taken on added importance even as overall mail volumes have decreased and paper mail in general has fallen out of favor across many sectors. With less direct mail “noise” to compete with, “mailed pieces now have a better chance to capture audience attention and response,” explained Warren.
Direct mail thus remains a foundation of donor acquisition and retention at many organizations. Some have looked to offset the increased cost of direct mail by doing away with premiums — those personalized stickers, mailing labels, and other gifts that fundraisers have traditionally included with direct mail packages to encourage donor generosity. In some cases, the supply crunch made doing so a necessity as many of these items simply weren’t available. For others, it was a business decision.
“Supply chain disruptions didn’t force us to scrap premiums but did require us to be more strategic with how we allocated funds for production,” said Temoney, of HSUS.
Even before COVID, some industry players had begun trying out data models intended to expand the use of digital and other fundraising channels and increase the targeting of mission-based donors, who typically offer a better response rate than those whose giving is incentivized by premiums. “A premium donor is harder to convert into being a regular donor unless you keep feeding them premiums,” explained Geiger. Still, premiums have a proven track record and most fundraisers who use them are reluctant to stop.
All of this translates into a need for flexibility that has lengthened the timelines involved in planning direct response campaigns. Fundraisers must now plan an organization’s campaigns at least half a year in advance and must also be prepared to quickly shift as circumstances warrant, in some cases by swapping one premium for another.
” Many manufacturers started putting resources into producing other things like cardboard and corrugated boxes. “
“We’re not seeing a lot of those issues like we were before,” said Moore. “But we do need to order in advance for things like personalized cards, labels, bookmarks, and Christmas ornaments. And we are seeing price increases of those premiums that are at least 15% higher than before.”
Roger Hiyama, executive vice president of Niwot, Colorado-based marketing, data and audience company Wiland, agrees that price hikes are the biggest post-COVID hangover. That’s not to say supply chain issues have completely gone away. Some Wiland clients are still having difficulty locating items such as coins that they use for premiums, he said.
To help clients navigate these challenges, fundraising and marketing consultants have been building data-based response models aimed at forecasting results both with and without premiums. The models have provided fundraisers a basis with which to evaluate the pros and cons associated with the added costs of premiums and enabled them to optimize results. Still, premiums don’t appear to be going away anytime soon.
“A year ago, nonprofits were scrambling to test or switch to a non-premium package out of necessity,” Hiyama said. “But I don’t believe nonprofits have moved permanently away from the use of premiums. Premium packages still generate higher response rates than non-premium packages.”
The rub is that doing the mailers and obtaining the add-ons necessary for premium packages has become much more expensive. “It’s not a supply chain issue today. It’s more of a cost issue. Postage, paper, labor and transportation costs have just continued to rise during these inflationary times,” Hiyama said.
Postage and shipping costs for most categories of nonprofit direct mail have already gone up a staggering 30% since the start of 2021 and are expected to increase further during the next 12 months. Expected rate hikes by the U.S. Postal Service in January and July 2024 could raise those costs another 15% or more by this time next year, according to Stephen Kearney, executive director of the Alliance of Nonprofit Mailers, a nonprofit trade group in Washington, D.C.
“The bigger challenge for nonprofit fundraising has been these increased costs of direct mail over the past three years that has dictated mailing fewer pieces,” Hiyama said. “The buying power for nonprofit direct mail today is likely 30% less than it was pre-pandemic, which means that an organization that mailed 100,000 pieces in 2020 is only able to mail 70,000 pieces today at the same expense budget levels.”
Digital fundraising remains a vital part of an omnichannel marketing strategy for those looking to reduce reliance on direct mail. “But the challenge facing fundraisers is not having a solid handle on revenue attribution,” Hiyama said.
A simple matchback process allows for linking an acquisition mail file to a donor database, which fundraisers can then use to measure the online giving that directly or indirectly results from a direct mail piece. By contrast, many still struggle with how to measure digital marketing’s effectiveness.
“As a result, we really haven’t seen a huge shift away from direct mail because it continues to be one of the most effective acquisition channels for nonprofits. And until the revenue attribution puzzle is solved, most fundraisers will continue to market the way they always have,” Hiyama said.
This isn’t only an issue in the United States. It is also a global challenge impacting international organizations. It’s unclear when the global effects of inflation will begin to recede and when fundraising will return to normal. Nor is it even clear what “normal” will look like for the foreseeable future.
The good news is supply chains are finally beginning to stabilize. The holiday rush could still present a challenge, however. “There are some lingering effects that could cause things to tighten in the fourth quarter, which is when we usually see our largest printed mail production,” said Moore. “So, if you haven’t planned in advance, you could run into a problem at that time.”
