Constant Contact has the Toolkit for Growth

The main growth levers at Constant Contact continue to point in the right direction, as the company — a provider of cloud-based digital marketing solutions for the small and midsize business (SMB) market — gains traction with its Toolkit online marketing platform.

Thanks to Toolkit, introduced in April, Constant Contact is seeing better customer engagement, higher average revenue per user (ARPU), improving retention rates and increased lifetime customer revenue, according to CEO Gail Goodman. 

Sticky Features

While Constant Contact still offers standalone email marketing solutions, Toolkit has emerged as an important driver of new customer wins and overall revenue growth. In the third quarter, revenue rose 16 percent to $83.5 million and the company added 10,000 net new accounts, bringing the total customer base up to 625,000, a gain of nearly 7 percent from 585,000 in the year-ago quarter.

With the average Toolkit monthly invoice at $50 ($10 above the company’s historical average), the platform in the third quarter helped boost Constant Contact’s overall ARPU to $44.89 from $44.40 in the previous quarter and $43.82 in the first quarter. The company expects to exit this year with an ARPU of $46 to $47, vs. $42.33 in the fourth quarter of 2013.

Toolkit’s “sticky” features — including enabling users to run multiple types of campaigns (everything from local deals and redeemable coupons to donation requests) at the same time and receive detailed performance metrics on each — are expected to help improve customer retention rates, resulting in a higher average customer lifetime value.

It costs Constant Contact about $600 to win and service an account over an average tenure of 50 months (up from 40 months five years ago); the higher the lifetime value the company can receive from a particular customer, the better the profit margin.

For 2014, the average lifetime value is expected to come in between $1,050 and $1,100, up 13 percent year over year at the midpoint. As the ARPU continue to rise and Constant Contact hits its goal of bumping up the average customer tenure to 55 months, lifetime value within a few years could reach the $1,500 to $1,600 range.

Playing with the Big Boys

Speaking at the Deutsche Bank 2014 Technology Conference in September, Constant Contact CFO Harpreet Grewal said Toolkit has moved the company into the league of ExactTarget (owned by and Responsys (owned by Oracle), meaning it’s now able to provide the SMB segment with the same high level of online marketing solutions as those two offer in the mid-market and enterprise segments.

With the monthly retention rate for paying customers at close to 98 percent, Constant Contact must be doing something right. The company generates about 40 percent of its new customers from referrals, according to Grewal.

To spread the word about its offerings (and build the customer base), Constant Contact holds local seminars and training workshops to help small businesses and non-profit organizations learn about and plan online marketing campaigns. Last year, these education programs attracted 180,000 attendees across North America. 

Bright Outlook

For 2014, Constant Contact is expected to come in with revenue of $331.2 million, representing growth of just over 16 percent. On the third quarter earnings conference call on October 23, Grewal offered a first look at 2015, saying revenue growth should see a boost to around 17 percent, above the Wall Street consensus estimate at the time, which indicated growth of 14 percent. 

This improved outlook helped send Constant Contact shares up nearly 10 percent in one session. The stock recently hit a new 52-week high at $33.75. The company now has a market cap of $1.07 billion, 2.8 times the 2015 consensus revenue estimate of $386.7 million

Constant Contact’s longer-term top-line growth target of 20 percent looks achievable, particularly as the company continues to build out its channel (so far this year, the number of platinum partners is up 50 percent) and more of the installed customer base begins to transition over to the higher-priced Toolkit platform.

Title image by Jack Mallon  (Flickr) via a CC BY-NC-SA 2.0 license.