Sramana: When did you hire your first employees?
Ryan Allis: We hired our first employee in September 2003, three months into the business. He was an intern for the first month, and then after that we paid him $1,000 a month which was all we could afford. He did customer service and marketing, and he worked for us for eight months.
The next employee was a 56-year-old who had read about us in the paper and wanted to team up with us. He worked for us for six years as our vice president of business development. He gave us a lot of credibility.
The biggest challenge in the first year came in December 2003. We had three services running off one server in the closet. The server hard drive broke, so our entire Web application was down for a week. We had to get a $5,000 loan from a friend in exchange for 1% of the company just to get the server fixed. We got running again six days later and ended up losing 30% of our customers.
At the end of the first year we were wondering why it was not going faster. We were doing $3,000 of sales a month and we had thought we would be doing a million. We still did not pay ourselves any salary, but we both had contract work for clients through our other companies that we were able to live off of.
Sramana: How long did it take you to reach $1 million in revenue?
Ryan Allis: Three years. We just had slow and steady growth. In 2004 we hired four more people, and we did much better in 2004. We did $300,000 in sales. In 2005 we did $1.3 million dollars in sales. We had figured out how to do online advertising to generate additional customers.
Sramana: What strategies worked for you?
Ryan Allis: Organic search was important. We also used an affiliate program, which worked well. Other websites about marketing would promote our product and we would pay a 25% commission. At the time Microsoft was the leader in the URL marketing business. They had a product called Microsoft List Builder. Constant Contact was second at 10,000 customers to Microsoft’s 25,000 customers.
We realized that we could write a script to subscriber to all of Microsoft List Builder’s newsletters. We did that and waited to receive an e-mail newsletter to their customers. We replied individually and introduced iContact, explaining that it was $10 a month and very easy to use. We doubled our customer base in one month with that technique and soon received a cease-and-desist letter from Microsoft.
Sramana: Did you create your own affiliate program, or did you get on someone else’s?
Ryan Allis: We created our own program. We reached out to potential affiliates ourselves. Aaron coded the software that enabled us to track who came from what website. We cut them checks every month. We were able to recruit several hundred affiliates that way.
By 2005 we had enough capital to experiment with paid search. The biggest moment in our company history that enabled us to reach $40 million in revenue in 2010 was figuring out the customer acquisition cost. Once we knew the customer paid us $50 a month and that they would stick around for four years, then we knew the lifetime revenue was $2,600.
We were able to use that to determine how much we were willing to spend to acquire a customer. Today we are acquiring customers at about $500 per customer, which is 10 months of revenue. Once we realized that, we knew what the numbers were and we were able to go out and raise capital so that we had enough funds to execute that campaign.