Vistaprint 2007 Annual Report Download - page 48

‰Conversion rates. The conversion rate is the number of customer orders divided by the total
number of sessions during a specific period of time. Typically, we strive to increase conversion
rates of customers entering our websites in order to increase the number of customer orders
generated. Conversion rates have fluctuated in the past and we anticipate that they will
fluctuate in the future due to, among other factors, the type of advertising campaigns and
marketing channels used.
‰Average order value. Average order value is total bookings revenue for a given period of time
divided by the total number of customer orders recorded during that same period of time. We
seek to increase average order value as a means of increasing total revenue. Average order
values have fluctuated in the past and we anticipate that they will fluctuate in the future
depending upon the type of products promoted during a period and promotional discounts
offered. For example, seasonal product offerings, such as holiday cards, can cause changes in
average order values.
We believe the analysis of these metrics provides us with important information on customer
buying behavior, advertising campaign effectiveness and the resulting impact on overall revenue
trends and profitability. While we continually seek and test ways to increase revenue, we also attempt
to increase the number of customer acquisitions and to grow profits. As a result, fluctuations in these
metrics are usual and expected. Because changes in any one of these metrics may be offset by
changes in another metric, no single factor is determinative of our revenue and profitability trends and
we assess them together to understand their overall impact on revenue and profitability.
Cost of Revenue. Cost of revenue consists of materials used to generate printed products,
payroll and related expenses for printing personnel, supplies, depreciation of equipment used in the
printing process, shipping charges and other miscellaneous related costs of products sold by us.
We believe that the vertical integration of our manufacturing operations is a strategic differentiator
for our business model. In January 2004, we opened our European production facility in Venlo, the
Netherlands and in April 2005, we opened a second production facility near Windsor, Ontario, Canada.
Prior to February 2004, we purchased all of our printed products from our third party print provider,
Mod-Pac Corporation, under a ten year exclusive supply agreement. The supply agreement provided
that Mod-Pac would serve as our exclusive print supplier for all orders shipped to North America with
pricing based on Mod-Pac’s costs plus a fixed percentage markup. The chairman of the board of
Mod-Pac is Kevin Keane and the chief executive officer of Mod-Pac is Daniel Keane, the father and
brother, respectively, of Robert S. Keane, our chief executive officer.
On July 2, 2004, we entered into a termination agreement with Mod-Pac that effectively
terminated all then existing supply agreements with Mod-Pac as of August 30, 2004. Pursuant to the
termination agreement, we paid Mod-Pac a one-time $22.0 million termination fee. On the same date,
we entered into a new supply agreement with Mod-Pac, which became effective August 30, 2004.
Under the new supply agreement, Mod-Pac retained the exclusive supply rights for products shipped to
North America through August 30, 2005. The cost of printing and fulfillment services in effect prior to
the termination agreement reflected Mod-Pac’s actual costs plus 33%. The cost of these services
under the new supply agreement was based on a fixed price per product. This fixed pricing
methodology effectively reduced the price we paid per product to costs of production plus 25%.We
further amended the new supply agreement in April 2005 to permit us to manufacture products
destined for North American customers in exchange for the payment of a fee to Mod-Pac for each unit
shipped from our Canadian facility. The new supply agreement expired on August 30, 2005 and we
have not placed any orders with Mod-Pac since that date.
In September 2004, we began construction of our new printing facility near Windsor, Ontario,
Canada. In May 2005, this printing facility began printing and shipping products to North American
44