5 Interesting Learnings from HubSpot as It Approaches $1 Billion in ARR

We kicked off our 5 Interesting Learnings series with “newer” SaaS companies for the most part, and learnings as they IPO’d:

HubSpot is a great one that IPO’d way back in 2014 🙂 to take a founder-centric deep dive on though.  Especially as they gear up to cross $1 billion in ARR in 2020.  Because in many ways, they are doing it the hardest way. With a $10k ACV.  That’s high enough you need to do a lot to support a sale.  But not so high you can afford a fancy traditional sales team.  Many see this price point as not scaleable.  But HubSpot proves otherwise.

Before we look at our Top 5 learnings, let’s take a look at this chart on HubSpot’s journey.  It will really, really show you how power laws kick in with recurring revenue models.  It took Hubspot 6 years to get to $50m ARR — pretty fast right there.  But then it went from $50m to $250m ARR in just the 4 years following.  And then from $250m ARR to $500m ARR just 2 years after that.  And then they will get to $1b ARR in just another 3 years.  Wow.  If you have something great in SaaS, never sell 🙂

Ok so what can we learn as Hubspot approaches $1b in ARR that is relevant to the Rest of Us Founders?

1.  Freemium remains the source of 60% of HubSpot’s customers, even at almost $1b in ARR.  There are many cases of freemium’s contribution slowing down (e.g., Box).  But Hubspot, Zoom and others have challenged the idea that freemium can’t scale well past $1b in ARR.  60% of Hubspot’s customers are still starting off in a free trial or free product.  Even now.

2.  International is 40% of revenues today and a growth accelerator.  We’ve talked in the past how some companies went global early (e.g., Salesforce) and some late (e.g., RingCentral).  HubSpot has gone global with a fury since 2014, driving from 22% international revenue to 40%.  Without that, growth would have slowed dramatically:

3.  Growth is 30%+ at almost $1b ARR.  But no big boost from net negative net churn.  HubSpot sells to what it calls mid-market customers.  We might call them SMEs (vs SMBs).   30% is super impressive at almost $1b in ARR.  But with ~100% net revenue retention (vs. 140%+ for Slack, Zoom and Pagerduty’s SMB customers), they do have to work harder.   Still, 100% net retention should be your basic standard with SMEs.  Hubspot does it at $10k ACV.  So can you.

4.  Even with more products, ACV still at ~$10k at 69,000 customers.  Many SaaS companies have grown their ACV by selling more products to their base, but HubSpot seems to have experienced something different.  Its customers still spend $9,992 per year in the last quarter — but they spent it on more products.  Your customers simply expect more over time.  HubSpot has delivered, with impressive growth.  But in the end, it is providing more products and more value at the same price point.  This counters the narrative of always raising prices on customers as you sell them more stuff.

5.  40% of their revenue comes from partners and the channel.   Those of you who have followed HubSpot know this, but it will a surprise to many.   Like Atlassian, Hubspot gets significant revenues from partners that deploy their products to the end customers.  In essence, both HubSpot and Atlassian outsource their sales forces in large part to their partners (who then charge for services on top of that).  This is less common in SaaS.  But it certainly can work when it fits the customers’ needs.  Both Hubspot and Atlassian have large salesforces, no matter what their collateral says.  It is just, a lot of those folks aren’t on their own payroll.

Congrats to Brian, Dharmesh and Team HubSpot on coming up to $1,000,000,000 in ARR.  And doing it in many ways, the hard way.

Published on December 19, 2019

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