So we took a look at Toast just after it IPO’d. Times were good then, and Toast was worth $24B.
Fast forward to today. and there’s not much to criticize Toast for. They dominate a large market, and are growing almost 60% at $800m in ARR! And yet, the markets are tough today, and Toast is now worth less than $10 Billion, despite executing admirably. Of course, their margins are lower than a pure software play (more on that below).
5 Interesting Learnings:
#1. Growth has slowed from an insane 118% just before IPO to a still impressive 59% today.
Toast isn’t accelerating the way some SaaS leaders are, but still, 59% growth at $800m in ARR is something a few years back we would never have thought possible.
#2. Driving up sales rep efficiency is key to driving up margins.
I’ve never seen a presentation like this before in a public company, but it’s interesting to see. Toast’s rep productivity is flat, and its average tenure is down, but a big chunk of this is due to territory expansion. As reps get better at selling in a new territory, efficiency and productivity go up. SMB sales (most of Toast) is very tough to do without a highly efficient and effective sales force. In the enterprise, by contrast, you don’t have to be quite as efficient.
#3. 20% of new customers / locations come from referrals.
This isn’t uncommon, but it’s great to see a leader call it out. This is what you should aim for, as a minimum. At least 20% of your customers from referrals and second-order revenue.
Many SMB leaders have to get very, very good at outbound because of the limited deal sizes. As the brand scales, they get more of a boost from inbound.
#5. 68,000 total locations, so about $12,000 per year per location (or $1k per month).
An SMB price point where you can afford to pay the reps reasonably well, but again, where margins are tight.
Overall, Toast isn’t quite a SaaS company. It has 65% margins on its SaaS / software, but only 20% margins on payments and payment services, and loses money on hardware and professional services.
But it’s a machine. Growing almost 60% at $800m ARR.