The Archive

Financial Justification for Outsourcing High-Security Mail Fulfillment

Introduction:

Many small to medium-sized businesses (SMBs), required to produce high-security Protected Health Information (PHI) or Non-Public Private Information (NPI) mailings end up doing it themselves, in-house. This may be because there’s a lack of communication service providers (CSPs) with the resources to do high-security mailings, willing to accept smaller mailing contracts. Or it may be the SMB thinking that it’s either more cost-effective and/or more secure to do it in-house. None of these assumptions is true. We have examined the issues of compliance, risk management, security, privacy, and accountability in other papers. Now, we will focus on the financial aspect of insourcing versus outsourcing high-security PHI and NPI mail, using the example of a real medical franchise company (who we’ll call MFC) to illustrate this point.

 

Analysis: In-Sourcing

With clinics in the Southeastern US., MFC equipped and staffed an 800 ft2 mail production facility within their corporate headquarters. The facility required one full-time employee, mailing equipment (printer, folder, inserter, sealer/postage meter), and a computer with specialized software. They were also required to amass paper inventories and storage to fulfill their 11,000 pieces per month mailing requirement. 

 

Their cost for this internal enterprise consisted of: 

  • One employee represents a fully loaded cost of $54,000 per year. 
  • A printer and computer with a combined value of $6,500, with projected useful lives of 5 years, call it $1,300 per year. 
  • The software has an annual subscription fee of $1,800. 
  • The other mailing and associated equipment bundles are typically leased and run roughly $2,700 per year. 
  • The floor space is part of the building being leased for the main clinic and corporate headquarters, commanding $22 per ft2, totaling roughly $19,000 per year including electricity. 

 

Put this all together and you have a thumbnail sketch of a business operation with an overhead cost of $78,800 per year. At 11,000 letters per month, this overhead comes to $0.60 per letter.

 

Paper inventory is becoming harder to find and prices are soaring.1 

  • MFC averages 2 sheets per letter sent. 
  • They use a double window outer envelope 
  • A preprinted #9 return envelope 
  • Together, this brings paper costs to about $0.18 for each letter. 
  • Printing Ink/toner, full color on one side only, adds another $0.11 per letter
  • The fully loaded cost per piece comes to $0.887 before postage. 
  • Add first-class metered postage at $0.53, making the out the door cost per piece $1.41.

 

Analysis: Outsourcing

There are three classes of Communications Service Providers you can use to outsource high-security mailing: 

 

  • Tier 3 Mail Service Providers (MSPs): 95% of all MSPs fall into this category. Their processes are analog. They rely on the same equipment and software set used for Marketing Mail and trust experience to make sure everything is processed and mailed correctly. One of the issues is that they have no way to document what was in each envelope, which envelopes did or did not mail, or that they were mailed AND delivered.
  • Tier 2 Mail Service Providers: 4% of all MSPs fall into this category. They have slightly more sophisticated software and hardware systems and some quality procedures in place to make sure the right content goes into the right envelope, but they can’t report results. They also can’t show which pieces were mailed or didn’t mail, but they can track the mail to show it was delivered. However, like the Tier 1 MSPs, they cannot document the content of each envelope, or whether or not it was produced, completed, and mailed. 
  • Tier 1 Communication Service Providers are about 1% of the market. These companies have the software and hardware systems to guarantee the Privacy, Accuracy, and Accountability of their mailing jobs. During the production process, they can create reports showing exactly what was in each envelope, whether or not that mail-piece was delivered to the post office and whether or not that mail-piece was delivered to the intended mailbox. 

 

Considering available outsource partners, Tier 3 MSPs are available for most any client, though their capabilities are limited, and their accuracy, privacy, and accountability are inadequate should a company outsourcing high-security NPI or PHI document fulfillment ever need to be able to prove what mailed to whom and when. Likewise, with Tier 2 MSPs, they may have a better chance of getting it right but lack the capability to prove the content and/or production of an individual mail-piece.

 

Tier 1 CSPs are the best option for companies to whom outsourcing is a viable solution. Mailtropolis is one of these Tier 1 CSPs. Unlike many companies functioning in this niche, Mailtropolis has created a production formula that targets SMBs producing 5,000 to 60,000 high-security mail-pieces per month. Naturally, prices for this service will vary depending on the structure of the mailing, but the market rate for a 2-piece letter going into a double window envelope, comparable to the piece we examined in the insourcing model discussed earlier in this paper, scales like this:1

  • Data processing, print, and production costs of $0.65 per mail piece
  • Keep the postage amount the same for both models at $0.53 each 
  • An out-the-door price of $1.18 each versus the fully loaded in-house cost of $1.41. 
  • This is a savings of 17%.

 

Let’s then assume a 6% per year increase in volume and a 4% per year increase in costs. A 5-year cost analysis would look like this:

 

Graph 1.0

Conclusion:

The financial burden of producing high-security PHI / NPI mail in-house is significant when you consider all the major factors. Outsourcing high-security document fulfillment can easily save you significant operating capital when compared to doing it in-house. Without considering issues such as opportunity cost for the space, the opportunity cost for the savings, the opportunity cost of an entire employee tasked with a non-value-added chore, it is still less expensive to outsource this function than to create and/or maintain the captive capability.

 

  1. Based onpaper pricing and availability as of 2/14/2022.