Saas Math Case Study: Dropbox
I’m guessing that most everyone who reads this blog uses Dropbox. The four year old company has over 50M users and adds a new user every second! It can be dangerous to use such run away successes as lessons when building your own startup. After all, most startups never achieve this level of success.
Still, a recent article in Forbes Magazine shed some light on their numbers and their success. If nothing else, these should serve as high level targets showing what is possible with a freemium SaaS company.
50M users, adding 1 per second
2M paying customers (4% conversion rate)
$ 240M revenue ($10/ user/ month)
70 staff members
From these little nuggets, I take away the following lessons:
Engineering-led cultures can be the most dangerous (in a good way). Most of the 70 people at Dropbox are engineers. This team is delivering $ 3.4M in revenue per team member. Let’s assume each staffer makes $100K (likely less on average). That still translates into a very profitable company (depending on acquisition costs). $ 3.4M per employee is way above benchmark and shows what is possible when you use technology to drive in market results.
Saas delivers huge visibility into your future results: Assuming churn is under control, then you can see well into the future. In the Forbes article the author notes, that even if the company does not sign up a single new customer in 2012 it’s sales will double. That level of certainty can give you great confidence in setting aggressive targets for your business.
Virality is so important to profitability: Even with 50M users, Dropbox still gets 1/4 of them from free referrals. At $10/ month, customer value is not super high (at 5% churn a customer would generate $200 of lifetime revenue). So, getting 1/4 of their users for free is very important to them.
To get paid conversion build a service that becomes ingrained into the user’ work: 4% conversion is good. I have seen higher, but good. It’s easy to see why they are achieving this and why conversion to paid is likely to increase in the future: Its easy to amass 2GB of data (the limit before you pay). And natural use of the service moves you steadily towards paying and helps generate more users for them.
Stay lean, even if you can afford to hire: At 70 employees there are over 700K users/ employee (28,000 paying customers/ employee). That is crazy efficient. Back in the early days when they had 200K users they had 9 team members. They only added 5 more team members to get to 2M users. I would speculate that had they hired lots of people, especially non-technical ones, they would never have hit the growth that we see today.
You should definitely read the full article. Lots of insights on leadership and raising capital. An inspiration for us for sure.