As the next stage in the process, the prospective customers are encouraged to begin a free trial. Trial customers are directly engaged by the telesales representatives for Constant Contact, who also play an important role in teaching the customer how to use email marketing.

The largest point of drop-off during the trial phase is when prospective customers do not invest the time to design their email with their own company’s branded look-and-feel. Despite the user-friendly tools offered by Constant Contact, this does take some time. A primary goal of the telesales representatives is to assist the customer past the point where they have sent their first email.

Once the customer has designed and sent a single email, chances are they will eventually want to continue with the product on a for-pay basis. Constant Contact offers several different price ranges based on the size of list, and also charges for add-on services (usually included free by their competitors) such as photo uploading past 5 photos.

The chart below shows how the economics break out for trial customers who do convert to become paying customers, sourced from Constant Contact’s public filings and presentations:

The key fact to understand is that this represents an average, and in fact the individual customers follow two very different distributions. We will explore the differences in these types of customers in further posts.

Bandwidth costs about $0.15 per GB, which can accommodate a little over 10,000 emails (assuming 100 KB per email). Each email marketing customer sends approximately 1 email blast per week, so a customer in Constant Contact’s $50/mo. price range would have about $0.15 in bandwidth costs each month.

In 2009, Constant Contact spent over $60 million on sales and marketing, representing the single largest expense for the company by far. Despite $100M in the bank, they were able to fund this expense through revenues from their long-time customers. In fact, for each new email marketing customer they brought on board in 2009 Constant Contact spent a whopping $350 in sales and marketing costs, according to company filings. That figure has risen by $50 for each of the past 2 years as Constant Contact has squeezed each existing customer harder.

It makes sense that Constant Contact would have plenty of profits from their best customers, because the real cost of sending an email is very low. So long as they can continue to milk their oldest and best customers, Constant Contact has a winning model.

In future posts we will investigate the cost structure of email marketing services and how they have priced their services as a result.