Tuesday, March 05, 2013

The one number (45) that explains Constant Contact's success

The Business of Software Conference sounds like a phenomenal event.  I haven't attended it, but I did recently run across one of the sessions from their 2012 conference, a talk by Gail Goodman, the CEO of Constant Contact:

For those who don't know, Constant Contact is a publicly traded online marketing company with over 500,000 customers who rely on it for things like email marketing.  While many people probably think of it as a recent success, it was actually founded in 1995, and went public in 2007, which means its nearing its 20th anniversary.

Gail's talk is fantastic, and well worth watching/reading in full detail.  But in my limited space, what I'd like to do is to focus on the one number that explains the company's success: 45

The average Constant Contact customer stays with the company for 45 months.  At their $39/month price point, this means that a customer generates about $1,800 in lifetime revenue, allowing Constant Contact to make money at a CPA (cost-per-acquisition) of $450.

This is the key to success in the SMB market.  Small businesses don't pay a lot of money; $39/month is probably on the high end.  And small businesses are hard to market to.  Constant Contact found that even after they dominated the organic search results for email marketing, they didn't get enough signups simply because small businesses weren't bothering to even search for email marketing.

Goodman credits the company's success to--get this--in person seminars through Chambers of Commerce across the country.

This kind of high-touch marketing is expensive, hence the $450 CPA.  So the math could only possible work if Constant Contact could hang on to those customers long enough to make a profit.

If you're a SaaS startup targeting the SMB market, you'd better either have an awesome freemium offering, or you'd better have a average customer lifetime of around 45 months.

7 comments:

Anonymous said...

great post!! How did you get a CPA of 450 from the 1800 lifetime value number?

rags said...

i have the same question..

Anonymous said...

Um, she directly TELLS you the $450 COCA number. From the transcript:

So here is the Constant Contact math, 39 dollars a month, 45 month called it roughly 1,800 in lifetime revenue. 72% gross margin, about 12. 50 %in lifetime gross margin, and 450 dollars cost of acquisition. So we’re 800 dollars in lifetime customer value.

--Jim S

Anonymous said...

It's been pretty thoroughly discussed that all Freemium does is load up your servers and support channels with moochers.

Have a free trial, yes, but don't have a freefium plan.

Chris said...

Sorry guys, I should have quoted the CPA calculation!

In terms of freemium, I think it does work, provided you pick the freemium criteria carefully. I've written about this before:

http://chrisyeh.blogspot.com/2012/08/the-only-kind-of-product-that-can-pull.html

harry @ GoalsonTrack.com said...

Good post. However, you didn't say what has made that number (45) possible. The number itself is not the answer to their success, but rather what they do to achieve that number is the key.

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