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.

The highlights:

50M users, adding 1 per second

2M paying customers (4% conversion rate)

$ 240M revenue ($10/ user/ month)

70 staff members

The Takeaways:

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.

I have seen similar per team member impact at other engineering driven companies like Shopify and Well.ca. Ali Asaria, Well’s founder once told me that “everything is an engineering problem”.

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.

  • Jerry Furry

    Nice campaign tactics there. I can suggest this to some of  calgary engineering companies. They can use this to entice or attract participants and college students.

  • Kelly Grey

    Great article! With the success that they are getting right now, immersing in another type of business shouldn't be a bad call. Say, business and accounting software, perhaps?

  • http://www.eqentia.com/blog wmougayar

    Great story. Is 4% conversion typical in freemium/SaaS companies?

    If 2 million users are subsidizing 48 million, that's a pretty high-margin business.

    • http://startupcfo.ca Mark MacLeod

      I target 2 – 5% for freemium businesses that sell to prosumers. So they're at the high end of the range. One funny thing about that % though is that it is artificially lowered by free user growth. If you look at cohorts over time they are likely at a much higher conversion %.

  • Armand Konan

    They also refused to sell the company to Apple for 800 millions, according to the article. This is also a good thing IMHO. Not that going for the exit is a bad thing but we need people who want to build companies, create jobs and keep innovating. I believe the "exit" mentality put this in jeopardy.

  • http://twitter.com/JayAClarke @JayAClarke

    Great article. Brings a little value into the mix when you can see the break down in how the company is valued at what they are, and how they are making their money.

  • Shadrach White

    it was a good article I read it early this morning and then saw this post tweeted a few minutes ago. I like your synopsis. Viral, Lean and Agile

  • http://jbyers.com James Byers

    Hi Mark — if $240M / 70 employees is correct, each employee is bringing in $3.4M rather than $340K. That puts them on the very high end of revenue per employee of technology companies I'm aware of.

    • http://startupcfo.ca Mark MacLeod

      Yep, that was a typo on my end. Correcting