Mailchimp vs. Constant Contact: Who Paid for the Growth

What happened

Mailchimp started in 2001 as a side project of an Atlanta web design agency and stayed private, funding growth from what customers paid. Constant Contact went public in 2007, and from then on every dollar it spent on growth was visible. By 2014 it was booking $331.7 million of revenue from about 635,000 customers at an average of $44.94 a month, and spending $125.8 million of that on sales and marketing to keep them coming. Endurance International agreed to buy it in November 2015 for $32.00 a share, about $1.1 billion, and the stock stopped filing in February 2016.

The case, start to finish

One company's growth engine sat in its marketing budget. The other's sat in the footer of its customers' emails.

The same customer, twice

The pairing here is not an author's conceit. Constant Contact's own annual report names the rival in its list of principal competitors, and describes how such rivals price: a low monthly entry fee, or a fee per email sent, and in some cases a free offering. Both companies sold software that lets a small business email a list it owns. Both were aimed at the same shopkeeper.

One of them went public in 2007 and from that moment disclosed, every quarter, exactly what it cost to win a customer. The other, started in Atlanta in 2001 as a side project of a web design agency, never had to tell anyone anything and did not raise money that would have made it necessary. Twenty years later the same two founders still held the equity, which is a fact about the cap table and also a fact about how much pressure the company was under to grow on somebody else's schedule.

Who paid to put the customer inside the product

Constant Contact paid. In 2014 it spent $125.8 million on sales and marketing: online advertising, television and radio, regional development directors, and local classes that drew roughly 185,000 attendees. Against $331.7 million of revenue, that is 37.9 cents of every dollar going to acquisition. Net income was $14.3 million, or about four cents. The spend bought real growth, and it was not a one-off year: sales and marketing ran $104.5 million on $252.2 million of revenue in 2012 and $111.4 million on $285.4 million in 2013.

Mailchimp let the customer in for nothing below a usage line and got paid later, if the list grew. When Intuit announced the purchase it counted 13 million total users and 800,000 paid, so roughly 6% of the people inside the product were paying for it. The other 94% were the marketing budget. Mailchimp's costs were never public, so nobody outside can compare the two expense lines directly. What is public is the output: $762 million of revenue in the nine months after the acquisition closed, from a company of just over 1,200 people.

A profitable company with a problem

It matters that Constant Contact was not failing. Revenue rose 32% from 2012 to 2014 and the company was profitable in every one of those years, in a category full of losses. It had 635,000 paying accounts at $44.94 a month, real brand recognition, and an education program that left small-business owners competent rather than merely subscribed.

The problem was quieter. Profit never scaled with revenue, because the acquisition spending that produced the growth had to be repeated to hold it. Revenue climbed $79 million across those three years while net income wandered between $7.2 million and $14.3 million. A business whose growth stops the month the spending stops has no floor underneath it, and the company's own risk factors described the mechanism that would eventually price it: rivals with a free tier, filling up from the bottom of the market it had built.

The strange part is that Constant Contact had the alternative engine running and never took the governor off. Its filings note that new customers came partly from the link to its own website in the footer of substantially all of its customers' emails. That is the product doing the recruiting, for free, at scale, and it sat alongside a $125.8 million budget doing the same job for money.

What the buyers paid for

Endurance International agreed to buy Constant Contact in November 2015 at $32.00 a share, about $1.1 billion, roughly 3.3 times the last full audited year's revenue. Five years later Intuit paid $12.0 billion for Mailchimp, $5.7 billion in cash plus 10.1 million shares, for a business running at close to a billion a year on the disclosed nine-month figure. Same category, same customers, roughly four times the multiple.

The lesson is not that marketing is bad. Constant Contact's spending built a genuine business with genuine profits and hundreds of thousands of people who could do something they could not do before. It is that customer acquisition cost is a permanent feature of the model you pick rather than a line you can optimize later. It keeps showing up in the price a buyer will pay for you long after it has stopped showing up in your growth rate. If your growth is a purchase you have to make again every quarter, you own an expense. If it is a property of the product, you own an asset.

Timeline

• 2001 Ben Chestnut and Dan Kurzius start Mailchimp in Atlanta as a side project of their web design agency, the Rocket Science Group, which is the legal name Intuit's purchase agreement still uses twenty years later.
• 2007 Constant Contact goes public. Its Form S-1 (No. 333-144381) is amended that September and the stock trades on Nasdaq as CTCT. From here on, every dollar it spends winning a customer is disclosed quarterly.
• 2014 Constant Contact books $331.7 million of revenue from roughly 635,000 paying customers at an average of $44.94 a month, spends $125.8 million on sales and marketing, and earns $14.3 million of net income. Its 10-K lists MailChimp among its principal email-marketing competitors and describes how those rivals price: a low monthly entry fee, or a fee per email sent, "and, in some cases, they have a free offering."
• November 2, 2015 Endurance International agrees to acquire Constant Contact for $32.00 a share in cash, valuing it at approximately $1.1 billion, a premium of about 23% over the prior close of $26.10.
• February 2016 The deal closes; Constant Contact files to deregister its stock on February 24, 2016 and stops filing.
• September 13, 2021 Intuit announces it will pay approximately $12 billion for Mailchimp: 13 million total users, 2.4 million monthly actives, 800,000 paid customers, half of them outside the United States, 1,200-plus employees, still privately held.
• November 1, 2021 The purchase closes at total consideration of $12.0 billion: $5.7 billion in cash plus 10.1 million Intuit shares worth about $6.3 billion. The sellers named in the equity purchase agreement are the Rocket Science Group and founder-named holding companies, with Ben Chestnut signing as sellers' representative.
• Fiscal 2022 Intuit's 10-K reports $762 million of revenue attributable to Mailchimp in the nine months Intuit owned it.

You're in the owner's chair

It is 2014. You run the public email-marketing company. Revenue is up 32% over two years and you are profitable, but sales and marketing is eating 37.9% of revenue, and a rival with a free tier is filling up from underneath you. What do you do?

• Spend harder — more television, more radio, more regional seminars
• Open a free tier and let customers' own emails do the selling
• Move upmarket, where a salesperson's salary is covered by one account

Constant Contact's 2014, in three lines from its own 10-K

• Revenue: 331.7 $ millions
• Sales and marketing spend: 125.8 $ millions
• Net income: 14.3 $ millions

Thirty-eight cents of every revenue dollar went to winning and keeping customers; four cents survived to the bottom line. The gap is not waste. It is the price of a growth model where the company, not the product, does the recruiting.

Business model

Identical on the surface: software that lets a small business send email to a list it owns, priced by list size and send volume. The difference was who paid to put a new customer inside the product. Constant Contact paid, with online advertising, television and radio, regional development directors, and local classes that drew roughly 185,000 attendees in 2014. Mailchimp let the customer in for nothing below a usage line and got paid later, if the list grew.

Revenue model

Constant Contact: subscriptions, disclosed down to the customer, at about 635,000 unique paying customers in 2014 and $44.94 average monthly revenue each. Mailchimp: a funnel with a free floor. Intuit counted 13 million total users and 800,000 paid at signing, so roughly 6% of the people inside the product were paying for it. The other 94% were the marketing budget.

Cost structure

This is where the two companies stop resembling each other. Constant Contact spent $125.8 million on sales and marketing in 2014, which was 37.9% of revenue and nearly nine times the $14.3 million it earned in net income. That ratio was not a bad year: sales and marketing ran $104.5 million on $252.2 million of revenue in 2012 and $111.4 million on $285.4 million in 2013. Mailchimp's costs were never public. What is public is the output: $762 million of revenue in nine months under Intuit, from a company of 1,200 people.

Strategic challenge

Constant Contact was not failing. Revenue rose 32% from 2012 to 2014 and it was profitable every one of those years. The problem was subtler and worse: profit never scaled with revenue, because the acquisition spend that produced the growth had to be repeated to hold it. Net income wandered, going $12.8 million, then $7.2 million, then $14.3 million, while revenue climbed $79 million. And the 10-K's own competition section describes the mechanism that would eventually price it: rivals with a free tier, coming up from the bottom of the market it had built.

Key decision

Constant Contact chose to keep buying customers and to defend the middle of the market. It said so in its filings: it did "not compete in a significant way" with vendors serving larger customers, and its free-trial funnel was fed by paid channels. The alternative was to give the product away below a usage line and let the customers' own emails do the selling. That was visible in its risk factors and was not adopted. Constant Contact even described the mechanism working for itself, noting that new customers came partly from the link to its website in the footer of substantially all of its customers' emails. It had the engine and never took the governor off.

What worked

For Constant Contact: real brand recognition, 635,000 paying accounts, an education program that made small-business owners competent rather than just subscribed, and a genuine profit in a category full of losses. For Mailchimp: twenty years of the same two founders holding the equity, so there was no clock forcing a raise, a sale or a growth number. When the company sold in 2021, the sellers in Intuit's own purchase agreement were still the founders' holding entities. That is what "nobody else paid for the growth" looks like on the signature page.

What failed

Constant Contact's cost of growth never fell. A funded company can spend 38 cents of every revenue dollar on acquisition indefinitely, and the market will fund it, right up to the moment it prices the business on what is left. Endurance paid about $1.1 billion, roughly 3.3 times the $331.7 million of revenue Constant Contact reported in its last full audited year. Five years later Intuit paid $12.0 billion for a rival producing about a billion a year at run rate (the $762 million Intuit disclosed for nine months, annualized), near twelve times revenue. Same category, same customers, roughly four times the multiple.

Risk factors

For the free-tier model: a huge unpaid user base is a real cost, and it only works if serving a non-paying account is nearly free and the upgrade trigger is honest usage growth rather than a nag. For the funded model: acquisition channels inflate, competitors bid the same auctions, and a business whose growth stops the month the spending stops has no floor. Both faced the same platform risk: deliverability sits with inbox providers neither company controls.

Lesson summary

Two companies sold the same software to the same shopkeepers. One bought its customers and kept 4 cents of profit per revenue dollar; the other let the product recruit and stayed founder-owned for twenty years. The lesson is not that marketing is bad. Constant Contact's spending built a real business with real profits. It is that the cost of acquiring a customer is a permanent feature of the model you choose, and it shows up in the price a buyer will pay for you long after it stops showing up in the growth rate.

Key data

• $331.7M Constant Contact revenue, 2014
• $125.8M (37.9% of revenue) Sales & marketing, 2014
• $14.3M (4.3% of revenue) Net income, 2014
• ~635,000 at $44.94 Paying customers / average monthly revenue
• $32.00/share, ~$1.1B Sold to Endurance (closed Feb 2016)
• $12.0B — $5.7B cash + 10.1M shares Mailchimp sold to Intuit (Nov 1, 2021)
• $762M Mailchimp revenue, Intuit's first nine months
• 13M total, 800,000 paying Mailchimp users at signing

Sources & basis

The company here is real and named, and nothing about it was invented to make the story land. The list below is where each fact came from — public filings, court records, published reporting — so you can open a source and check it against the sentence that used it.

1. Constant Contact, Inc. Form 10-K for fiscal 2014 (filed Feb 25, 2015) — revenue, sales and marketing expense, net income, customer count, and the competitor list naming The Rocket Science Group LLC (MailChimp) View source ↗
2. Endurance International Group Form 8-K, Exhibit 99.2 (Nov 2, 2015) — $32.00 per share in cash, approximately $1.1 billion, 23% premium to the $26.10 close View source ↗
3. Intuit Inc. Form 8-K, Exhibit 99.1 (Sept 13, 2021) — approximately $12 billion, 13 million users, 2.4 million monthly actives, 800,000 paid customers, 1,200+ employees View source ↗
4. Intuit Inc. Form 10-K for fiscal 2022 — total consideration $12.0 billion ($5.7B cash + 10.1M shares at $625.99), and $762 million of revenue attributable to Mailchimp in the period after November 1, 2021 View source ↗
5. Mailchimp company history — founded 2001 in Atlanta by Ben Chestnut and Dan Kurzius as a side project of their agency, the Rocket Science Group View source ↗