Stamps.com 2006 Annual Report Download - page 5

Second, we plan to continue working on developing new acquisition channels. While we are happy with the performance of our existing
marketing channels, we are constantly looking to expand our portfolio of acquisition strategies that we employ. As a result, we will be testing
several new channels throughout the year, focusing on identifying new channels that can bring in customers at a low cost per acquisition
relative to the lifetime value of the customer. We use the phrase “lifetime value” to mean the total gross profits earned by customers for the
duration that they are with our service. We are also focused on finding channels that allow us to increase the spend rate while maintaining
reasonable per customer economics.
Third, we will continue our focus on optimizing our conversion rate from prospect to customer. The optimizations of our website and
registration process pay dividends across all of our marketing programs. We added some new tools in the fourth quarter of 2006 to help us
optimize these areas, and those tools have already shown some initial improvement to conversion rates. We plan to continue working on this
area in 2007.
Fourth, we are going to focus on improving our overall customer experience. Over the past five years we have made dramatic strides in
improving our product, and the majority of those improvements could be categorized as new features that broaden our product’s usefulness in
more areas and in more ways. We believe that the new features added over the past few years have resulted in clear increased lifetime values
for our customers acquired in 2006 versus those acquired a few years ago. During 2007 we plan to invest less in feature expansion and more on
improving our overall product usability and overall customer experience. To accomplish this, we will focus on the initial experience a customer
has with our product, and we will also explore building more usable interfaces for accessing the power of our product on an ongoing basis.
Fifth, we plan to launch and market a multi-user capability in our service. This new capability will allow multiple users to access a single
account balance. The majority of our small business customers today have fewer than 10 employees, and the fact that we haven’t had this
capability historically has limited our ability to successfully attract larger businesses. We also find that not having multi-user capability limits
our ability to grow with our customers as we typically will lose a small business after they grow to a certain size. The largest technical hurdle to
providing multi-user capability which held us back for several years was finally solved and the new technology was successfully launched in
2006. We are now finishing the customer interfaces for this multi user capability. Once we are able to launch the multi-user capability, we will
market it both to our existing customer base as well as to new prospects. Additionally, we expect to charge more than our base pricing of
$15.99 per month for a multi-user capable service so that may increase our overall customers lifetime value as well.
Sixth, we will continue increasing our efforts around the enterprise area. We feel that we were successful in attracting a good number of
enterprise users to our service in 2006 at a low cost per acquisition relative to the lifetime value of the enterprise customers. Enterprise
customers continued to be attracted to us versus using a postage meter based on our dramatically lower total cost of ownership and the great
visibility into employee activity that isn’t available with a postage meter. We plan to increase our sales and marketing efforts throughout the
year so long as the cost per acquisition continues to remain attractive relative to the projected lifetime value of the enterprise customers.
At a high level, we estimate that the ratio between lifetime value of a PhotoStamps customer and the cost per new customer acquisition is
reasonably good, but it is not as good as we experience in our PC Postage business. A lower ratio between lifetime value and customer
acquisition costs results in a business model that moves into profitability more slowly and that is what we have experienced so far. Our sales
and marketing expenses directly related to PhotoStamps exceeded our gross profits in the fourth quarter of 2006 and for fiscal 2006 as a whole.
Our 2007 strategy for our PhotoStamps business is to increase the ratio of lifetime value to cost per acquisition while continuing to grow our
marketing budget at a reasonable rate. We plan to accomplish this in at least three major ways.
First in our 2007 PhotoStamps strategy, we plan to work on increasing the lifetime value of a PhotoStamps customer. We plan to test the
pricing and business model of the PhotoStamps product and work to optimize it to achieve higher overall lifetime values. We also plan to
intensify our efforts to increase repeat traffic and word of mouth referrals. Additionally, we plan to continue adding licensed products –
like the
products we added in 2006 of NFL®, collegiate, and NASCAR® images – as those types of products provide us with a great cross sell and re-
marketing opportunities. We will also look at additional ways to monetize our PhotoStamps traffic more effectively.
Second, we will expand our customer acquisition programs while keeping our cost per acquisition low. We will continue to run our
traditional PhotoStamps marketing programs while testing new programs. We will also continue
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