The cost of compliance for Business

Posted on Tuesday, August 14th, 2007.

We have quite a bit of experience in email marketing and helping businesses with their email marketing strategies especially in the small and medium business sector. This also means we see a lot of how businesses work.

Now the government has been quoted as saying that the cost of compliance is roughly estimated to be up to $2000.00* (and that’s for larger businesses). Okay nice guess but I would like to provide our readers with a hypothetical case study that is actually based on real businesses and how they operate. The costings provided within this document including hourly rates are based on discussions with our own clients as to some of the costs they incur dealing with IT systems within their business.

The purpose of this case study is to show our readers that $2000.00 may be a little conservative in the cost of a small/medium business complying with the Unsolicited Electronic Messages Act 2007 (NZ Anti-SPAM Act).

Background

For the purpose of this case study and privacy of our clients let’s call this business “Acme”.

Acme like a lot of small and business New Zealand business rely on email to communicate with their customers and prospects. Below is a list of email marketing practices that we have seen while conducting compliance audits. We will use these as a basis to calculate the cost of compliance.

1. Acme has 5 staff members who deal with the customers including sending “commercial” email to Acme’s prospects and customers.
2. They all use a their own desktop email clients to send the emails and do not use a centralised electronic address book. Why don’t they use a centralised address book you ask? Because they cannot afford a full time IT person and have a limited budget to spend on IT contractors and third party supplies (does this sound like your business?).
3. Acme has a long standing monthly competition for their existing customers. For the customer to participate in the competition every month all they have to do is send at least one friends contact details that maybe be interested in receiving a promotional discount coupon for their first purchase. The referred friend is normally contacted via email and sent the discount coupon within the email. Acme signs up at least 2 new clients a month using this strategy.
4. At the end of every month they send their entire database a monthly newsletter with discounts and other product related information. The database contains customers and prospects. How Acme fills up their contact database is by way of several methods:
   • They add the customers email address after the first product has been purchased.
   • They verbally ask customers and prospects over the phone or in person if they would like to receive the monthly newsletter. If the person states yes then they are added to the database.
   • Subscription by the Acme web site. When a person subscribes an email is sent to an Acme staff member who then adds it to the contact database. Most of the time the staff member deletes the request email.
   • A person sometimes sends Acme an email or fax to request subscription to the monthly newsletter.

Unsolicited Electronic Messages Act 2007

Jayne who is the director of Acme reads on a website that the New Zealand Unsolicited Electronic Messages Act 2007 will come into force on the 5th September 2007. By then her entire business must have all the systems and processes which deals with commercial emails checked for compliance. And additionally Acme must be able to provide proof of consent for every existing subscriber they email to!

Starting work on compliance

Jayne is starting to think that this is no small project as email is vital for the ongoing sales. Jayne decides to write a list of all the challenges she sees to making sure Acme is complying with the new law. Here is her list below:

1. Work out how to manage un-subscription requests coming in via email, phone and fax.
   • Who is in charge of un-subscribing a person from the mailing lists and making sure it is completed within 5 days of receiving the request?
   • How can all the staff members be informed of the un-subscription so they do not accidentally send the person another email.
2. How do we prove consent for all the existing subscribers? That’s 20,000 email addresses some of which are over 3 years old.
3. How can the un-subscribe facility be added to every commercial email that is sent from Acme? What should the wording be?
4. Are there any systems within Acme that are currently automatically sending out emails with sales content in them like the billing system? Can the sales content still be included?
5. What about the monthly competition deal where existing customers are rewarded for providing contact details of friends?

The costs start adding up

Cost 1

Jayne is lucky enough to find several helpful web sites on the Unsolicited Electronic Messages Act 2007. Jayne quickly learns that she cannot send any person a commercial email without their prior consent. This means that the monthly competition needs to be altered where the referred contact must be contacted some other way than by email and SMS. Jayne decides to try the phone option first. This will add additional charges to Acme’s phone bill as many referrals are national and international.

Cost 2

Jayne is confused about the three different forms of consent in relation to how she can provide proof of consent for all her existing subscribers. Jayne decides not to engage her lawyer to provide direction as the cost would be too much. She instead decides to re-contact all the existing subscribers asking each one to reply to the email if they wish to continue receiving Acme emails.

In order to process the replies she decides to hire a student on an hourly rate to receive all the replies and update a master spreadsheet that contains all the existing subscribers’ details. The existing staff are too overloaded with their existing tasks to also take on this project. Jayne calculates the cost at:

20,000 emails – 8000 (40% failure rate/no response) = 12,000 emails

1000 emails processed in 8 hours = 96 hours

As a side note if Jayne had understood that an Email Service Provider such as Mobilize Mail could have completely automated this tasks for a massively lower amount with zero human error.

Cost 3

In order to work out how to process un-subscribes in the most efficient and cost effective way for Acme Jayne hires a consultant to help her. The consultant charges $120.00 + GST an hour and estimates the work to be around 3-4 hours.

Jayne made the decision to get outside professional help as she was very aware of the fines imposed by government for breach of the Act by not complying with the 5 day requirement to process an un-subscribe request. Since there are 5 staff members who send out commercial email it was vital that a process be in place where all staff members where alerted to the un-subscribe request and to keep honouring the request in all future communications.

Cost 4

To keep costs down Jayne decides to work on the un-subscribe facility requirement herself. She estimates it will take her at least 8 hours to create the right sounding un-subscribe message for the commercial emails and to educate all her staff on how to update their email signatures and how to process an un-subscribe request if the sender receives the request directly. Jayne estimates the cost to the business of lost time while she was dealing with this task at $100.00 per hour for 8 hours.

Cost 5

Jayne is not sure what if any Acme IT systems are sending out emails that could be considered commercial. Her thoughts lean towards the online merchant system which was setup by an external IT company. She is also not sure about the billing system because she vaguely remembers a promotion they had one time that Acme promoted via the billing system emails. She is not sure if the promotional was ever removed. As with the merchant system this was setup by the same external IT company.

Jayne contacts the IT company to get a quote on the cost to check her Acme systems for email compliance. The IT company provides a quote taking into account that the original staff members who configured the two systems for Acme no longer work for the company and no documentation was every kept to help with maintenance. Therefore the quote comes in at 4 hours to check all Acme systems and an additional estimate of 2 hours to reconfigure the systems if required. That is a maximum of 6 hours at $90.00 per hour!

Summary

I have been in IT for over 15 years and with my experience I believe the tasks I have mentioned in this case study are far from complete. There are many additional tasks businesses will need to consider when checking their systems and processes for compliance.

Just look at businesses that are large enough to have marketing, customer service, sales and finance departments. How will they manage to make sure that a person who has un-subscribed from one commercial email is not sent another commercial email from another department within the business?

How can a business process an un-subscribe request when the business has 100’s of different mailing lists for many different types of email communication? Do they do a blanket removal of all mailing lists and risk lost of future income or do they absorb the cost of getting customer service to contact the person to find out exactly what they want to unsubscribe from?

A common occurrence is subscribers details gathered by one department are shared with the other departments resulting in the subscriber receiving commercial email they never directly subscribed to. Marketing is a great one for this practice!

Also consider the cost of re-configuring IT systems where the product vendor is required to make any changes to the system at a huge hourly rate. You maybe surprised to learn that there any many systems within a medium to large business that send out all types of emails without senior management having any idea of the frequency and content of the emails.

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