USPS Reports $476 Million Loss in 2 Months

Posted on | January 4, 2010 | No Comments

Wow. What a surprise…

I was talking with a buddy of mine late last year (around the time the USPS was losing this half billion) about the USPS and their lame business model. They have done everything possible to encourage their demise. Besides raising rates for first class stamps to the point where consumers stampeded to online options, they destroyed the catalog and direct mail Standard Mail industry with wacky new database qualifications and ridiculous rates.

I don’t think the postal service is going to fold — it can’t — but they’re going to have to go through some drastic changes very soon.

Anyway, let’s look at their business model. It’s not too complicated…

First off, you have a business with all the systems in place to successfully carry out all it’s functions at a steady operating cost. You pretty much know how much you need in sales every month to break even. If sales volume falls below a certain level you start losing money. At this point you have two choices. You can raise your prices or increase sales volume.

So what does the Post Office always do?

Of course, they raise the prices. And they’re doing it an ever increasing frequency. Even worse, they raise rates when the economy is in terrible shape. Makes sense, right?

But what would happen if they did what a smart businessman would do in the same position? Remember, you have a fixed operating cost (unless fuel costs fluctuate wildly). If you don’t want to start laying off employees or closing up stores there’s only one thing to do.

Increase sales volume.

And what’s the best way to do that? Of course the answer is to increase demand. And the only way for the USPS to do this is by lowering their prices. (It works great for Wal-Mart)

Now I don’t know if this is the answer but the only way to find out is through testing. If you boost volume it’s found cash flow.

Anyway, get ready for another postal rate increase. It’s the only business model they know.

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If the USPS lowered the rates would you use the service more? What do you think? Your comment is welcome!

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