Stamps.com 2013 Annual Report Download - page 31

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Cost of Revenue
The following table shows cost of revenues and cost of revenues as a percentage of its associated revenue for the periods indicated (in 000s
except percentage):
Cost of service revenue principally consists of the cost of customer service, certain promotional expenses, system operating costs, credit card
processing fees and customer misprints that do not qualify for reimbursement from the USPS. Cost of product revenue principally consists of
the cost of products sold through our Mailing & Shipping Supplies Store and the related costs of shipping and handling. The cost of insurance
revenue principally consists of parcel insurance offering costs. Cost of PhotoStamps revenue principally consists of the face value of postage,
customer service, image review costs, and printing and fulfillment costs.
Cost of service revenue decreased 2% to $15.4 million in 2013 from $15.7 million in 2012. The decrease in cost of service revenue is primarily
attributable to lower promotional expense as a result of a decrease in our coupon redemption rate, partially offset by higher system operating
costs, credit card processing fees and customer service costs reflecting the growth in our business and our associated investments to support that
growth. Promotional expense, which represents a material portion of total cost of service revenue, is expensed in the period in which a customer
qualifies for the promotion, while the revenue associated with the acquired customer is earned over the customer's lifetime. As a result,
promotional expense for newly acquired customers may exceed the revenue earned from those customers in that period. Promotional expense
decreased 32% to $2.4 million in 2013 from $3.5 million in 2012. The decrease in promotion expense is primarily attributable to fewer
customers acquired and to lower coupon redemption rates.
Cost of product revenue increased 5% to $5.7 million in 2013 from $5.4 million in 2012. The increase in product costs was driven by increased
product revenue. Cost of product revenue as a percentage of product revenue decreased from 37% in 2012 to 34% in 2013. The decrease was
primarily attributable to decreased fulfillment costs and to an increase in NetStamps labels revenue which have a lower cost of revenue as
compared to other products sold in our Supplies Store.
Cost of insurance revenue increased 15% to $2.7 million in 2013 from $2.3 million in 2012. The increase is primarily attributable to increased
insurance revenue resulting from increased activity by our high volume shipping customers. Cost of insurance revenue as a percentage of
insurance revenue increased from 33% in 2012 to 36% in 2013. The increase was primarily attributable to the increased level and mix of
discounted insurance rates for shippers.
Cost of PhotoStamps revenue decreased 13% to $3.7 million in 2013 from $4.3 million in 2012. Cost of PhotoStamps revenue as a percentage of
PhotoStamps revenue increased from 76% in 2012 to 79% in 2013. The increase was primarily attributable to the decrease in PhotoStamps
revenue resulting in less fixed cost leverage and an increase in the face value of the cost of postage by the USPS which we did not pass on to
customers in the form of higher pricing.
27
Table of Contents
2013
2012
Cost of Revenues
Service
$
15,422
$
15,720
Product
5,694
5,435
Insurance
2,685
2,334
PhotoStamps
3,699
4,267
Total cost of revenues
$
27,500
$
27,756
Cost as percentage of associated revenue
Service
16
%
18
%
Product
34
%
37
%
Insurance
36
%
33
%
PhotoStamps
79
%
76
%
Total cost as a percentage of total revenues
22
%
24
%