Submitted by: Phil Riebel 01/07/2014
Case Study: The Cost of Direct Mail versus Email Invoices
This blog appeared in the series “Two Sides to Sustainability” by Phil Riebel in Printing Impressions on December 5, 2013
Every now and then I come across a study that flies in the face of conventional beliefs. This one in particular interested me because of our ongoing campaign to remove “anti-paper” green claims used to promote “lower cost” electronic billing. It seems that the “lower cost” feature is now also being questioned by some. Let’s take a look.
In 2009, a young Danish company called Natur-Energi A/S took on a challenge to create a better communication tool that would increase the number of invoices paid on time. Natur-Energi is dedicated to locating, generating and delivering simple and effective energy supplies and solutions that result in lower CO2 generation. Their customers are, for the most part, private small and medium-sized companies who are committed to CO2 reduction and slowing climate change.
According to an article in the August 2013 issue of Fresh Data (an on-line resource from Data Services Inc.), a case study details how Natur-Energi decided to test whether switching to paper invoices with a new population of customers would improve the speed of payment. The study’s objective was to establish what effect digital invoicing has on customers and whether switching to invoices sent via physical mail could improve the on-time delivery of payments with those customers. Secondly, the campaign would investigate whether digital invoices were cheaper than physical mail in regard to overall operational costs.
A test population group of 2,879 new customers was selected and their behavior through a two-month billing and payment cycle was carefully monitored. Records were kept of the type of invoice sent, date and medium of the first and second reminders, traffic to Customer Service and date of write-off.
What they uncovered is good news for the paper industry. According to the case study, evidence shows that new customers pay the required amount significantly later if they receive their invoices by email, compared to physical mail. Natur-Energi discovered that sending invoices via email actually increased their overall costs.
The survey found that 59 percent of customers receiving the invoice via email had to be sent a reminder, while only 29 percent of customers receiving the invoice via mail required a follow-up message.
After the first reminder, the customer helpline saw activity increase 80 percent from the customers who received email invoices which created a large strain on the company’s customer service telephones as well as personnel. Only 50 percent of the customers who received their invoices via email reached out for help. That is to say, 47 percent of those receiving an initial invoice by email called Customer Service after a reminder meaning only 14.5 percent of customers receiving an initial invoice via direct mail called Customer Service.
The survey clearly states:
A call to Customer Service was calculated to cost about $9 per call. On these calls, the customers were asked why they had not paid on first billing. The common responses were that either they had not received the first bill, or “Maybe it’s in the SPAM folder.” Or, put another way, about 38 percent of the customers billed by email ended up costing the company an additional $9 (80 percent of 59 percent). However, only 14.5 percent of those billed by mail cost the company that $9 (50 percent of 29 percent).
And, of course, there were non-payers in both groups who failed to pay after a second bill and the management of each of these customers was customer specific and calculated to cost on average of $11.
The bottom line is that it cost the company $3.25 per customer to get paid by paper invoice and $5.75 per customer billed by email.
With every new reminder that had to be sent out, costs increased significantly for those customers needing an extra push to make their payment. What Natur-Energi experienced by using paper invoices was a savings of 42.8 percent of the associated costs.
Another interesting element of this experiment? Direct mail postage is pricey in Denmark at almost twice what is in the United States. It seems to makes sense to us then that the case becomes even stronger for mailing invoices in the U.S. market where the postage cost is so much lower.
According to Natur-Energi CFO Gert Lund Storgaard, “Liquidity is a vital success factor in a new and fast growing company, and we will continue to send physical invoices to new customers for this reason.”
We couldn’t have said it better ourselves.