Royal Mail have announced a new contract services ratecard for Royal Mail prices (opens in .pdf) which become effective on the 2nd April 2012. These prices are subject to a final Ofcom announcement at the end of March but are expected to be approved without change.
The net result of the price changes is an average 11% price increase across Royal Mail’s range of services. However in certain areas the price increase will be significantly greater.
Packetpost Price Changes
The biggest rise in prices will be for Packetpost users. Whilst the pricing for Large Letters is increasing Packetpost packet prices are losing the smallest weight bands to be replaced by a 0-750g price bracket. This has the effect of increasing a 100g packet price by almost 64% from £1.336 to £2.19 and 101-250g packets will also cost £2.19 up from £1.66.
If you use PacketPost to ship low weight packets rather than large letters you’ll be facing a serious increase in your postage costs. This will affect sellers of items such as mobile phone chargers which are relatively light weight but are too bulky to be classed as Large Letters (Large Letters are up to 353mm x 250mm x 25mm thick).
Regardless of whether you ship with chargeable post or offer free post to customers, you’ll need to assess the impact of the price changes and how they’ll affect your business.
VAT on Royal Mail Services
Don’t forget that Royal Mail have already announced that all their bulk mail services will attract VAT from April 2012. Packetpost users will also now be paying VAT on postage prices which isn’t included in the the prices shown above and some Royal Mail services already attract VAT. There is a page on the Royal Mail website setting out Royal Mail services which will attract VAT from 2nd April 2012.
New account payment channel for VAT exempt 1st and 2nd class mail
Royal Mail will introduce a new account payment channel for 1st Class and 2nd Class mail on 2nd April 2012 to offer an alternative to other account services. There will be no volume discounts but the advantage is that the new service will remain VAT exempt suiting sellers who are not VAT registered or use the Flat Rate VAT scheme and are unable to reclaim VAT.
The new product will initially adopt last years (the current) prices but be prepared for a price increase mid-April in line with price increases for franked and stamped mail.
Calculating the cost impact on your business
If you use Special Delivery, Tracked, or Packets you can check the 2011 and 2012 prices with the Royal Mail Packet Price Calculator on the Royal Mail website to give an indication of the new prices you’ll be facing.
For other Royal Mail products you need to check the 2012 Proposed Price for Contract Services PDF document on the Royal Mail website.
Remember if you access Royal Mail public tariff rates (those available through Online Postage and at Post Offices) the price changes for these will be published in late March.
Royal Mail told us:
We know how hard it is for businesses when the economy is as tough as it is now. No-one likes to raise prices in the current economic climate. Mail volumes have fallen by around 25 per cent since 2006 and the regulatory regime has meant that prices have been artificially low. Royal Mail has made a loss on its core mails, including packet, activities of almost £1 billion over the last four financial years. That is not sustainable for any business so we need to better align prices with the cost of providing our services.
Since 2006, Royal Mail’s cashflows have been £3 billion less than anticipated. There has been significant under investment in Royal Mail for a number of years. Including in crucial areas like IT where we really lag behind our main competitors. We need to make a commercial rate of return so that we can invest in the business for the benefit of all our customers
Price rises are not enough to keep Royal Mail at the centre of UK life – we have embarked on our own major self-help programme. We have closed 14 mail centres in the last three years. Around 50,000 people have left their jobs at Royal Mail over the last ten years. This is a painful process of change, but one we are committed to completing.
At the same time, we are launching the biggest improvement to our contract mail products since they were first introduced. The market has changed a lot in recent years, so we are improving our portfolio to better reflect those changes and make it more relevant to your business needs. The improved portfolio of products are more accessible, simpler to understand and easier to use.
24 Responses
This is very worring for our business as we will obviously have to increase our costs to incorporate the high price rises. This will probably mean that many buyers will be put off from the higher price that they will have to pay for low value items. 85% of our orders are dispatched as packets so this will hurt us very badly.
If this is a reflection of what is planned for standard packet post with a single tariff for the weight band up to 750g then I see it as very good news.
It will simplify UK shipping calculations making listing easier and encouraging buyers to make multiple purchases of lightweight items.
Shipping of low value lightweight items for me is a waste of time but I feel obliged to do this because ebay don’t have a means to set a minimum order value for an ebay store and I have no way of preventing this type of purchase. Setting a minimum shipping value of say £2.50 which I can now justify should be a big disincentive for the type of buyer who takes advantage of the lack of a minimum order value setting.
Reading the previous post there will be winners and loosers but remember that everybody on ebay is in the same boat and will have to adjust their sales strategy.
I’m with Shazina Wallington on this, on marketplaces like eBay UK and Amazon UK, it seems sellers from abroad are doing better than we are :S
I dont think it will deter ebay buyers. I mean £2.50 postage plus the 0.99p cost of the charger that some one on ebay always seems to be ‘some how’ selling at.
Is still far cheaper than mobile phone shops who need to make proper living.
Considering the overall economic situation in the UK at the moment, I would say it is the wrong time.
Small businesses need all the help they can get at the moment. internet based retail/and mail order is an area which has the potential to grow, create jobs and also, is most probably, keeping some away from unemployment/benefits.
A 64% price increase is never very palatable.
I suppose you could say ‘what does it really matter’, just pass it on to your buyers and be done with it, all retailers that post items are in the same boat so it will affect us / them all.
Online sales success is all about keeping costs to an absolute minimum whilst using all the tools you can to be efficient.
We are seriously considering scrapping both the Large Letter classification and moving from 1st class across the board to second class.
Simplifies our business and I’m not convinced customers would notice.
John
This is a catagory sensitive decision. It is down to buyer expectations in the market in which you operate.
I only use 2nd class and my DSR’s in the relevent catagories are 4.8 or above. But my offer is product driven rather than time driven.
My office in Berlin wanted to send me a legal document by certified mail to send to a client in the UK.
Berlin to UK = 3 Euros
UK to UK (same service parameters) = £5.45 (today’s price)
We decided to cut me out of the process!
My point is UK to UK we are not going to sniff at the prices as every seller has to work them into their costs.
However, getting stuff from Europe instead of the UK suddenly starts to become a lot cheaper.
And is still delivered to my door by my local postie.
It does feel like we are being squeezed both sides, ebay/customers are expecting Free delivery, suppliers are increasing prices, Royal Mail then increase prices, customers expect lower prices!
It can be hard for business that clash with joe blogs business in their bedroom to compete, OK postage goes up for them but they don’t have the overheads we have!
Hi,have to agree with liz.
Buyers won’t be buying from UK sellers anymore,cheaper to purchase from Chinese sellers.
Will change Ebay and not for the better.It’s about time that Royal Mail had compertition so that this market was opened up.
Private sellers already pay 10% Ebay fees and now increased Royal Mail fees.
Can’t see it worthwhile selling on Ebay.
it cost less to send something from HK to UK than to next door.
The new pricing structure is a killer. Especially if you are selling low value items with free delivery. Royal Mail lost the plot here. 43p to 55p. So a badly managed company passing the costs to businesses. I am surprised that there is no alternative Mail company. We are stuck with Monopoly of Royal Mail. Why companies like UK Mail or My Hermes are not stepping in. They have the structures already to handle this kind of operation.
I’d like to see Ebay do something to prevent the UK site being overrun by products being dispatched outside of the UK. This would somewhat balance out these local price increases. Buying directly from the East seems much more attractive now. Often Chinese parcels come with tracking facility at a reasonable cost.
I’d be happy to pay the extra amount that is now going to be charged by Royal Mail if there is an appreciable increase in quality of service and came with tracking facility as standard.
Well Royal Mail is abusing it s powers at expense of businesses and the buyers. They know they are monopoly on postage and they are rinsing their position. So there is not much we can do. According to wikipedia: Royalmail delivers 84 million mails everyday. If all those mail was 2nd class packet post at 55p Thye will be having revenue of £46 million pounds per day. According to wikipedia again. Royalmail employs 130000 people. To cut the story short i don’t it. How the hell they are running this business.
If these rises are panning out as we seem to think with the 0-750g single tarriff band then ebay need to focus more on encouraging their buyers to make multiple purchases.
They have to make it far easier for buyers to make multiple purchases and simplify this process. If they don’t they are going to loose business as many single sale items will appear to be pricey when shipping is taken into account. “Free” shipping has to incorporate the shipping cost in the price so there is no price benefit here.
On my website 8 out of 10 buyers make multiple purchases. On ebay 2 out of 10 buyers.
OK ebay have introduced a basket but more needs to be done. I could go on but again maybe we need a new topic about what ebay and sellers could do to improve the multiple purchase to single purchase ratio and remain competitive given the forthcoming postal price changes.
At the end of the day if shipping has a minimum future cost of £3 something has to be done.
I guess lower value item sellers will be affected to a greater degree than me. I offer free shipping but the shipping costs account only for 5% of my expenses. Most cost efficient sellers will survive, buying online often is the cheapest alternative and people will keep buying the things they need.
I am seriously worried. Our product sells for around £1.99 – £2.99 but because of it’s shape falls under the ‘small packet’ bracket.
We noticed a drop off in sales when Royal mail first introduced the Small packet rate a few years ago and our postage cost immediately went up from around 40p to over £1 To now add another £1 on top of that to the postage for such a low value item is likely to put us out of business! So what do I think of the people behind these increases? Pure stupidity by people whose salaries are paid to them. If they had to make a living for themselves perhaps they would understand the severity of their decisions. My guess is though that they don’t really care!?
We post around 40 000 packets a year and this will cost us an extra £7200 a year at least, with an increase of about 14%. I’m not so adverse to the price increases as long as service standards improve, but I am not confident.
At Christmas, Royal Mail could not cope with the volumes of mail in Scotland and Northern Ireland (even posted on their website), from a company that is complaining of decreased volumes it isn’t really the service standard you expect when they should be prepared for increased volumes, items were taking up to 9 days for delivery from NI to England.
It would be cheaper for me to move my business to Hong Kong, have my EU based suppliers ship to me there and ship orders to the UK, with customers not having to pay tax due to individual item cost (under £18), and me paying cheaper postage, labour and rent / rates costs.
What the government should also be doing to help eBay sellers is ensuring every packet / consignment entering the UK is checked for customs, duty and also to remove illegal, dangerous and counterfeit goods, protecting legitimate UK businesses, protecting and creating jobs in the process.
I am quite worried about how this will affect many online retailers. It will make sense to adjust their online pricing to reflect these increased costs. It would not make sense to order something under 500g and incur the greater relative postage rates. I guess it could encourage larger basket sizes, such as amazons super saver delivery option when £15 or more is spent.
The price rises sound like a necessary evil, looking at the huge monetary losses. It is surprising it has gone on so long really. Lets hope they sort out the service.