How Postalytics Reached $300 ARPU and 4% Monthly Revenue Churn in Its First Year of Direct Mail Automation (Interview with CEO Dennis Kelly)

Introduction and Company Overview

Nathan Latka

00:01Hello, everyone. My guest today is Dennis Kelly. He's the CEO of Postalytics, the leading direct mail marketing automation tool. He's a six time entrepreneur primarily focused on software and technology. He's been involved in founding, investing, and senior management roles in startups such as Genesis Business System, anyday.com, Palm Inc., Adjoin Solutions, Computer Associates, and others. Dennis, are you ready to take us to the top?

Dennis Kelly

00:22I am ready.

What Postalytics Does and How It Makes Money

Nathan Latka

00:23Alright. Postalytics. What do you guys do, how do you make money?

Dennis Kelly

00:27Postalytics is a direct mail automation tool. And what we do is we help marketers deploy direct mail marketing programs as a part of their CRM and marketing automation platforms.

Nathan Latka

00:40Mhmm. One of my favorite tools is Bond, which allows me to do handwritten letters out to folks tied into our CRM. It sounds like you're that, but maybe all kinds of direct mail, physical objects, gifts, toys, etcetera.

Dennis Kelly

00:51You've got it. We're we're focused right now on our launch at on postcards and letters, and, we're able to, send to very large lists as well as small lists or, triggered CRM, based, campaigns as well.

Nathan Latka

01:08That's great. Now you said you're just getting ready to launch. Are you pre revenue today?

Dennis Kelly

01:12No. We are early revenue.

Nathan Latka

01:12Okay.

Dennis Kelly

01:12And so we we launched in, early two thousand eighteen.

Nathan Latka

01:18Okay.

Dennis Kelly

01:18And, and and we're ramping very quickly. We've, signed up over 450 customers

Nathan Latka

01:18Oh, that's great.

Dennis Kelly

01:18In that amount of time. And folks are using the platform on a self serve basis.

Nathan Latka

01:28And are these 450?

01:29These are these are actual paying customers, not free users.

01:32Correct?

Dennis Kelly

01:33That's correct. We do have a freemium and so folks are able to sign up and and use the products for free and then upgrade as they go, pay as they go.

Pricing and Average Revenue Per Customer

Nathan Latka

01:42And, Dennis, I know you've got kind of a a $0 per month plan, $199 up to $399. Give me an average. What's the average customer pay you per month?

Dennis Kelly

01:49The average customer is paying us about $300 per month on a subscription basis, and, we're pulling in about a thousand dollars a month for paying customers on per piece fees.

Nathan Latka

02:01Per piece. Okay. Interesting. Now if I take 450 customers and average $300 kind of per month price point, that puts you right now at about $135,000 per month. Is that accurate?

Dennis Kelly

02:10Yes, that's roughly accurate.

Nathan Latka

02:12Okay, that's great. So you just launched in 2018 going from nothing to $135,000 per month is very quick. Just to be clear, that $135,000, that's just the pure play SaaS revenue. You didn't have sending fees and all that on top of it, about a thousand bucks a month.

Dennis Kelly

02:23Exactly.

Customer Acquisition and HubSpot Partnership

Nathan Latka

02:24Okay. Very good. Where did you... I mean, that's incredible growth, Dennis. Congrats. Where did you get that... Those customers from? How'd you sign them up?

Dennis Kelly

02:31The vast majority of them are HubSpot customers, and, they have found us, through both of our our content marketing as well as our our investment in the HubSpot Connect partner program.

Nathan Latka

02:41Okay. And what does that investment look like? Walk us through how that works.

Dennis Kelly

02:45Sure. So, HubSpot is, early on, but investing very heavily in building out their partner ecosystem. And so we have been aggressively working with HubSpot's management to be sort of a premier partner. We're geographically located near HubSpot. We know a lot of the senior management team. And so we've been investing very heavily in marketing and sales enablement and and doing co marketing, co selling. We have an agency product. HubSpot's got a huge agency partner program. And so,

03:19we... We've really, embraced a a go to market strategy that involves a heavy investment with a very fast growing CRM and marketing automation tool.

Mail Volume and Pricing Structure

Nathan Latka

03:29Yep. And how many pieces of mail have you sent today?

Dennis Kelly

03:32We've sent about 2,000,000 pieces of mail in the last eight months.

Nathan Latka

03:37That's great. Yeah. I'm looking at your pricing page. You know, I'm just gonna give a sample real quick. So for a four by six first class, but, you know, between zero and twenty five hundred copies, it's, you know, 55¢. Right? So these are the kinds of things people can can pay. And that's a cheaper rate on that plan because the per month software fee is higher. It's 399 per month versus if it was a cheaper per

03:55month fee, then it'd be higher per per kind of piece of mail sent. Correct?

Dennis Kelly

03:59Exactly. Exactly. And so the the typical onboarding process our customers, are going through is they'll find us. They'll sign up for the free tool, they'll send out a few mailings in the free tool, and then as they ramp up, they they, move up into a subscription.

Nathan Latka

04:13Now if I'm paying you $400 per month, is that pure margin to you, or do you take that spend and apply it to my first a thousand, you know, four by six, you know, things that you send?

Dennis Kelly

04:22No. That's that's pure margin.

Nathan Latka

04:24Okay. Got it. So good. I I just wanna say so so you don't have, like, you know, hard costs of, you know, the the the physical paper, the stamps, the envelope, and all that out of that $400 per month fee?

Dennis Kelly

04:34No. That's really covered in the per piece fees.

Bootstrapped or Raised Capital

Nathan Latka

04:36Got it. Very cool. Bootstrapped or raised capital?

Dennis Kelly

04:39So, yeah, we are, just starting to, put together an round, where we're planning to

04:46reach out to folks that are interested in investing in the space. We're really trying to sort of redesign the way that direct mail works. And so folks that have an idea of how effective direct mail marketing can be and and... But want to sort of disrupt the space. A traditional printer model is the workflow and the sales process, the onboarding process really hasn't changed since the nineteen nineties. And so we're really trying to apply a SaaS

05:17business model and a SaaS software model, to this industry that still is about $45,000,000,000 a year in The US, but has really stagnated in terms of evolution.

Fundraising Plans and Valuation

Nathan Latka

05:30So, Dennis, how much are you looking to raise?

Dennis Kelly

05:32We're gonna raise between 500 and $600,000

Nathan Latka

05:32Okay.

Dennis Kelly

05:32Here to start.

Nathan Latka

05:32And how'd end with that?

Dennis Kelly

05:32It it... We put together a business model that, allows us essentially to take that capital, expand the footprint of the product and the sales and marketing organization, and take us through to cash flow positive.

Nathan Latka

05:52That's great. So you're raising $500,000. And are you gonna do that on a on a convertible note or a safe or actually gonna sell equity?

Dennis Kelly

05:59We're actually gonna sell equity.

Nathan Latka

06:00Okay. Great. So you're gonna do a price round right right away.

Dennis Kelly

06:03You got it.

Nathan Latka

06:03That's great. And what are you aiming... You don't have to tell me the exact number, but what are you aiming for in terms of valuation?

Dennis Kelly

06:09In the, high seven figures.

Nathan Latka

06:137 figures. Okay. So call it somewhere between maybe, you know, 7 and 10,000,000, something like that.

Dennis Kelly

06:18Exactly.

Nathan Latka

06:19Yeah. Very good. And and have you have you had any pitches yet? I mean, how have they gone?

Dennis Kelly

06:24Yeah. We've had a couple of pitches. We've got several folks that are interested, and and we're really trying to find the the right partners. We wanna find folks that can help us, not only, financially, but also through their relationships and, their experiences. And so, you know, we're early on in the process, but we feel pretty confident we'll be able to raise that money.

Nathan Latka

06:44Yeah. And I just wanna be clear too. Usually, I ask people about growth rate in terms of you're at $135,000 today in revenue. Take me back a year in August 2017. What were you at?

06:51You you were pre revenue at that point.

06:53Right?

Dennis Kelly

06:54That's correct.

Nathan Latka

06:55Yeah. So nothing there.

Team Size and Location

Nathan Latka

06:56Very good. What's the team size today?

Dennis Kelly

06:58There are four of us.

Nathan Latka

07:00Four people. Everyone based in Boston or in that area?

Dennis Kelly

07:03Yes.

07:04Four. We have an extended team of contractors and part time folks.

Nathan Latka

07:04You

07:11mentioned one of the reasons you want to raise capital is to get profitable. What I imagine with four people, $135,000 in monthly revenue, think you're cash flow positive, correct, right?

Dennis Kelly

07:19Oh yeah, but we are planning to significantly increase our spend.

Nathan Latka

07:23I see. I see. No. That that makes sense. But but I mean, look, even though if you raise $500,000 and you then increase spending by $100,000 per month, you still have $135,000 of income there. I mean, it it would be... You'd have to really spend... You'd have spend to that $500,000 you raise in five months or less, I I would imagine, to put you guys into serious cash flow negative territory.

Dennis Kelly

07:41Yes.

Nathan Latka

07:42Yeah. Exactly. You

07:43you have a lot of experience kind of with other companies and such. Walk me through how you're... You know, why not go raise 5,000,000 or why raise it all? Why not keep bootstrapping?

Dennis Kelly

07:52Well, we're really trying to, to grow this company a little bit differently than we have in the past. We are interested in, taking small sips of capital, and and and small sips of outside leverage to to grow the business rather than, kinda take the traditional venture capital approach. And and we wanna build a business that is aligned around, disrupting this business and and building long term value as opposed to, I guess, often, meeting the needs of

08:29limited partners and and, things that can sort of, distort, the early progress of a startup.

Nathan Latka

08:36But you're about to be in that... You raise $500,000, even with friendly angels, about to be in that phase.

Dennis Kelly

08:42Yeah, to some extent, but it's a little bit different than raising 5 to $10,000,000.

Churn Rate and Customer Retention

Nathan Latka

08:46Yeah, definitely. Okay, tell me a bit more about some of the economics here. So churn, what's your churn today?

Dennis Kelly

08:52About 4% per month.

Nathan Latka

08:53Okay. That's logo churn per month?

Dennis Kelly

08:56I'm sorry?

Nathan Latka

08:57That's logo churn or revenue churn?

Dennis Kelly

09:00That's revenue churn.

New-to-Direct-Mail Customers and Seasonality

Nathan Latka

09:01Revenue churn per month. Okay. That's not bad at all. People that are churning, why are they churning?

Dennis Kelly

09:07They'll typically not have success with the campaign. They'll, try a few things out, decide to focus on other, channels. And so that really is a great opportunity for us. One of the things that we're finding is over 50% of our clients are new to direct mail. And so that, you know, the actual creative piece of it is something that we think we can really bring some expertise to the table to as we ramp up.

Nathan Latka

09:37Now, one of the things that I've got a question about is seasonality on this kind of thing. I imagine during the holidays, are gonna send out more, you know, Black Friday deals via snail mail than they would at other times. How do you deal with seasonality in the business model and make sure it doesn't totally kill you in terms of churn?

Dennis Kelly

09:51Yeah. That's something we're really trying to, work through as... In our first year. Right? We we have to kinda see what that really looks like and and understand what, the the the model will, require in order to smooth. Obviously, having a subscription revenue helps. And then the other thing that we... We've done recently, we've given folks the... An ability to prepurchase mail credits, so that, they can buy in bulk and get volume discounts. And and so

10:22that should help smooth, particularly for high volume senders.

Nathan Latka

10:25Mhmm. Yeah. It'll be interesting to see how you develop out that model. You know, 4% revenue churn per month, I think what that's 48% per year. So you're churning half your revenue each year. You've got to... I'm sure you're working on this, but you've got figure out some way to bring that down to like two ish or one and a half percent, something like that. And a lot of it's got to do with pricing experiments.

Dennis Kelly

10:42Yeah. Pricing as well as I think giving folks tools to be more in their marketing.

Attribution Tracking and Technology

Nathan Latka

10:48Mhmm. Is there value to the platform if I'm paying you and in that month I send you no mail?

Dennis Kelly

10:55Yes. So what you are getting in the platform actually is campaign management and tracking. And so often, there's actually a a much longer life cycle of a direct mail send. And so leads and inquiries will come in weeks after a piece of mail is sent. And so we've got, some proprietary tools that enable marketers to understand the actual attribution of a piece of mail to a person.

Nathan Latka

10:55How?

Dennis Kelly

10:55So we we actually have a a a patent

11:25pending method of, delivering a unique URL for each piece of mail that is sent in a campaign. And so, what you're able to essentially do is apply our tracking code into your landing pages, and we can understand, hey. This is Dennis responding to this piece of mail that was sent three weeks ago.

Nathan Latka

11:44Mhmm. So Dennis, I have a question for you about this because in theory, it sounds great. I have a lot of friends that have tried this model. Alyce strikes me as an example. They do virtual gift giving, and they allow customers to basic... Or CMOs to send out gifts to a thousand customers. And there's a tracking code, you know, X71635. Go to www.customername.com. Put in this code to like get your prize. It's... They found it so

12:07difficult to tie the attribution loop because... And I... Look. I've never done it either. I've never gotten a physical piece of mail from say Restoration Hardware and actually use the code. I just go to restorationhardware.com and buy whatever I want from the direct piece of mail. How are you gonna try and make sure that consumer, when they get the mail, who doesn't give a damn about tracking, actually use that complicated... More complicated than just typing in

12:29the company name, uses that URL or that tracking code?

Dennis Kelly

12:32Sure. Sure. So there's two things. First, when when the call to action and the offer is tied directly to the code, you find a very high percentage of folks that are responding will use that code. Second, there's new technology rolling out in every phone being built by Apple and by Google, that will automatically scan QR codes as well as URLs. There's a new feature being rolled out in Android called Google Lens, that is applying artificial intelligence

13:03to the camera. And so, in the very near future, you'll just point your camera at a URL and it'll take you right to that page.

Nathan Latka

13:11But see, you see what I'm saying this though. When I pick my mail up and I bring in my kitchen counter, the last thing I wanna do... Like, I've never pulled my phone out and scanned mail before. You're having to teach the consumer to do a whole new behavior, which is a steep learning curve specifically so your customers can track attribution. How do you make that process valuable for the end customer?

Dennis Kelly

13:28Well, what what... Again, the first thing is is really getting the creative tied to the use of that URL. And so we have clients that do that and they do it with great success.

Nathan Latka

13:39Can you quantify that somehow? So if they send out a thousand unique codes, how many of those codes end up getting activated in the first month that the mail sent?

Dennis Kelly

13:46Well, if there's a very strong offer, we see 50, 60% sometimes.

Nathan Latka

13:51Mhmm.

Dennis Kelly

13:52And so, and then the other key, of course, is tying in multiple ways to respond. Right? So so we'll have, an ability to add 800 numbers, to... Unique 800 numbers to a mailing

14:06and provide a wide variety of different response mechanisms.

CAC and Unit Economics

Nathan Latka

14:10Interesting. Alright. Last few questions here on economics before we wrap up a payback period or sorry, CAC. How much are you spending to acquire these customers?

Dennis Kelly

14:17Right now we're not spending that much money to acquire customers. It it... You know, we're we're very early stage. We're not really spending much on marketing. We're be rolling out, marketing, programs that will you know, cost some money here after we raise some capital.

Nathan Latka

14:34Mhmm. But let's say you're in a in a meeting right now with a friendly angel. They're they're gonna ask you, well, if I give you $500,000, what are you gonna spend it on? And your answer's gonna be, well, we haven't tested that yet. We don't know what the payback period is, but we need to figure that out.

Dennis Kelly

14:44Well, you know, if we're talking to an angel, we'll be providing a little bit more detail.

Nathan Latka

14:51I see. But I mean, but what cohort data will you use if you haven't done like paid testing yet on CAC?

Dennis Kelly

15:01Well, I I think we're at a very early stage, and folks will be buying into the fact that this is an idea that makes sense, and I'm investing very early here. Yeah. You know, early stage unit economics are very unreliable.

Nathan Latka

15:16No. No. I agree with that. I I... By the way, I'm not saying... There are there are companies doing 1,000,000 a month in revenue that don't know some of these numbers, but I'm just saying I I think the the thought process on the decision tree related to CAC and payback is more interesting than what the actual number is.

Dennis Kelly

15:32Sure, sure. And so, you know, we've got unit economics. I just don't think they're worth very much at this point.

15:40Yeah, because the sample size is so small.

Nathan Latka

15:42Exactly. Yeah. Very good.

15:43Okay. So again, four people remote locations, too early to dive too much in the economics, looking at raising some capital here.

15:49Will you go outside of Boston or you think you'll stay masonably in Boston and and maybe look at, you know, people like HubSpot investing directly at strategics?

Dennis Kelly

15:57Yeah. We will be definitely speaking to some strategics. We have some folks that are beginning to tap into our API that are interested in potentially investing, and we are speaking to investors outside of the Boston area.

Nathan Latka

16:12That's great. And Dennis, how how much in new AR are you gonna close there at INBOUND?

Dennis Kelly

16:16Good question. So we're hoping to bring in between 400 to 500 leads and and go from there.

Famous Five

Nathan Latka

16:23That's great. Alright. Let's wrap up with the famous five. Number one, what's your favorite business book?

Dennis Kelly

16:28My favorite business book is the one page marketing plan.

Nathan Latka

16:31Number two, is there a CEO you're following or studying right now?

Dennis Kelly

16:35The CEO that, I'm, most interested in is Halligan at HubSpot.

Nathan Latka

16:41Yep. By the way, he comes in and just says, okay. You're trying to raise that 7,000,000 pre. Why don't I just offer 7,000,000 to buy the company? Do you sell?

Dennis Kelly

16:41No.

Nathan Latka

16:41You don't sell for 7,000,000. That's like... What is that? That's four x your ARR.

Dennis Kelly

16:41I don't.

Nathan Latka

16:41Interesting. Okay. Number three. What's your favorite... By the way, then why raise at that rate?

Dennis Kelly

16:58It's it's just a number that I think will work.

Nathan Latka

17:02Okay. Number three. What's your favorite online tool for building your business besides your own?

Dennis Kelly

17:07Favorite online tool for building our business?

17:12Drift.

Nathan Latka

17:13Number four, what is your... How many hours of sleep are you getting every night?

Dennis Kelly

17:18I get seven to seven and half hours.

Nathan Latka

17:20That's pretty good. And what's your situation, Dennis? Married, single, kiddos?

Dennis Kelly

17:23Married, kids out of the house.

Nathan Latka

17:26How many?

Dennis Kelly

17:27Two.

Nathan Latka

17:27Two kiddos.

17:28Very good. And how old are you?

Dennis Kelly

17:30I am 52 years old.

Nathan Latka

17:31Alright. Take us home, Dennis. What do you wish your 20 year old self knew?

Dennis Kelly

17:34I'm sorry?

Nathan Latka

17:35What do you wish your 20 year old self knew?

Dennis Kelly

17:38I wish I knew the, the value of balance in my life with exercise, family relations, and and, the things that you you sort of pick up over the years, in terms of life balance.

Nathan Latka

17:53Guys, balance is important. Dennis, CEO of Postalytics, looking to raise $500,000 on maybe 7 to 10,000,000 pre money. They've scaled fast. Just launched, went from nothing, $135,000 per month in pure SaaS revenue across 450 customers. Bootstrapped today. They've got four percent revenue churn per month. He's exploring ways to drive that down. Too early for most of the unit economics, but the growth so far is impressive. Seriously cash flow positive with just four people in all remote

18:17locations around The States. Again, founded here in 2018. Dennis, best of luck and thanks for taking us to the top.

Dennis Kelly

18:22Thank you everybody. Have a great day.