HubSpot: 5 Interesting Learnings at $2.4 Billion in ARR

Hey everybody. There are few SaaS and cloud leaders that are more visceral to us than HubSpot. The majority of folks in the SaaS community actually run their businesses on HubSpot. According to a survey we did last year, HubSpot does. It has really five core five core products now, but it is obviously almost canonical in marketing and sales. A lot of us build products for marketing and sales or similar. So we're like HubSpot. And HubSpot also sells to primarily to smaller and medium sized SaaS companies. Most of us have at least some of them and our customer base. So of all the leaders, you might not be sure how much you're like Pager Duty or digitalocean or Snowflake or cloudflare, but a lot of us feel like we're a lot like HubSpot. So how's HubSpot doing? Answer pretty good, pretty good. But here's what's interesting. At 2.4 billion in ARR, 2.4 billion in ARR,HubSpot is still growing like a weed. It is still growing a pretty crazy 24%. But it's having macro challenges. Like many of us, it is having more challenging times with customers buying less HubSpot. NRR is down, customer count is strong, but NRR is down. So HubSpot even at a stunning $32 billion valuation at 2.4 billion in AR, it's about as good as it gets. But it's not immune to macro effects. But it's pushing its way through them. It is doing better than far most of us are, even with some macro challenges. So let's dig in for five plus interesting learnings plus a few bonus ones on how HubSpot is doing it. Okay, number one and I've come to see that this is literally the most important metric I think of all in SaaS. As you scale in the early days, revenue growth matters the most. Then you realize getting churned down and getting NRR matters the most. Getting NRR over a hundred percent, getting revenue retention over a hundred percent is incredibly critical. But the biggest risk once you get big is not that you don't figure out eventually how to keep your revenue retention above a hundred percent. Almost all of us figure that out at scale, everyone. But if you get to scale, you will but that you exhaust your customer universe, that you struggle to grow your net new logos. And some leaders like Fastly and Pagerduty are barely growing their new customers 1% a year. If you really want to grow even at scale, you've got to Grow your new customers at least 20% a year when you're younger, probably 50% a year, but at least 20% a year at scale. And most can't do it. But the best can. The snowflakes, the cloud players and the Hubspots. HubSpot is still growing its customers astounding 23% a year. Even at 205,000 customers, even at 2.4 billion in ARR. So that's pretty darn impressive. Okay, next one is interesting. Revenue growth is 24%. Maintaining 24% growth at 2.4 billion ARR is incredible. But actually they're working even harder than it sounds because NRR is down to probably around 100%. It was in 2021, it had, it had floated up beyond 110% was still 104% at 2 billion in revenue, but now it's down to about a hundred percent. HubSpot, as we'll see next, is not seeing logo churn elevated, it's not seeing customers cancel. But what they're doing is buying less, they're managing their budgets. It's not just in the enterprise. Smaller and medium sized businesses are just being more careful with how they spend and so that's impacting HubSpot. So yes, growth is up, but it's got to grow that customer count 23% to keep up so that that habit trail motion keeps going. A lot of folks, if our NRR is, if we're more enterprise and our NRR is 110, 120%, it's a little easier to maintain that growth. But if you're SMB, sometimes you really have to do it all. You have to grow the customer count almost as fast as revenue growth. And that's where HubSpot is today. And with its current head macro headwinds, it's had to keep customer count growing at epic rates to keep that revenue going. Number three, and this is another sort of subtle macro impact, their ACVs are flat. HubSpot has raised prices, it has added more products, it has gone a bit upmarket. But all of that hasn't increased their ACVs as you might expect. Now some of that is that just as HubSpot has actually gone up market, it's actually gone down market. At the same time it's invested more in its starter customers to nurture them for life and grow them over time. So as as much as it's gone up, it's also gone down, which is interesting and something which I think is critical to truly going long. But their ACVs haven't gone up 11,365, not much higher. Even though I certainly know plenty of startups that are paying 30,000, 40,000 or more for HubSpot. On average, they haven't driven their ACV up. And that just makes growth harder. Again, a cheat code for growing in SaaS is driving your NRR up. And one of the ways you do it is you increase average deal sizes. One way or another, you increase the amount average customers pay. But if it's flat, it just makes it that much harder to grow. Okay. One thing that you cannot criticize HubSpot for, and this is not unique to them, it's true of many other cloud leaders as well, is boy, they have gotten efficient. If you look at this chart, boy, they have gotten efficient. Now they've been pretty efficient for years. They hit their first non GAAP operating profit in 2017, but boy, look at this in 2023. Last year, going into 2024, it's just rocketed. They have almost 20% operating margins. Now it's non GAAP. We're not going to dig into a lot of accounting details. I know a lot of folks that know them will challenge these metrics a little bit. But what's important is measuring things consistently. How efficient is HubSpot? And it's gotten very efficient. In fact, just in one year it's gone from 10% non GAAP operating margins to 17%. That's a massive amount of efficiency. And we'll show you why in, in just a moment, which is point number five. Point number five is they have broken through. HubSpot has crossed 300,000 in revenue per employee and is driving toward 400,000. This is the new paradigm in SaaS. Most of the cloud and SaaS leaders are now above 300,000 in revenue per employee. So many are above 400,000. That's how you get efficient, folks. You don't get efficient by cutting lunches or cutting back on retreats or making everybody share one zoom account. That, that's, that's small stuff, folks. It doesn't work. What you gotta do is do more with the same number of employees. That's what happens. And so most folks have slowed hiring. Forget about layoffs. Layoffs are a one off thing. They don't do much. And HubSpot did go through a correction about a year ago. They did do some downsizing, but you can't do that every year. It doesn't work. And so it's a shock effect to get the, the operation leaner and more fit then the key is just growing headcount slower than revenue grows. If HubSpot's revenue is growing 23% a year at 2.4 billion, if it grows headcount 15%, 10% a year, it will get more and more efficient. And that's just what they've done. That's just what they've done. They are still hiring, but with just under 8,000 employees, that's about 310,000 in revenue per employees. That's how you get efficient in. HubSpot is the next cloud leader to do it. Okay. And a couple other quickies. HubSpot used to break down its revenue per product. CRM versus marketing versus CMS versus service. They don't do that anymore. A lot of folks want to hide from maybe some of the rougher metrics if they can or at least make it look more consistent. I suspect the reason Upspot is doing that is is sales. CRM is just exploding. I think it's probably over 700 million air on its way to a billion. They really have dominated the low end of CRM. But the marketing hub is probably pretty mature. It's pretty mature now. So they're not breaking out the metrics at least where I can see. But what they have said is Even today that 60% of its pro and enterprise customers, it's slightly bigger accounts, use two or more products. Just a reminder that you gotta go multi product at some point on the way to a hundred million in ARR. Maybe a little bit further, maybe earlier for SMBs, but you just gotta get there or else growth stalls. Okay, 0.7. We talked about it above, but see it here. They say gross retention is still in the high 80s and this is important. HubSpot is seeing some macro headwinds as many of us are. But what really matters is you're adding new customers, which they are at an epic rate at 23% and that gross retention remains high even if NRR is down from 110 to a hundred. The ultimate question is are your customers staying? That's far more important than whether this month or this quarter they happen to buy more and they are staying. At HubSpot, gross retention is consistent. It has not come down. It's in the high 80s and that's a good sign. And just two last points. One, one more. Just note, HubSpot doesn't do a lot of acquisitions. They haven't historically. The ones they've done actually have moved the needle. They actually got into marketing automation originally through an acquisition, but they did buy clearbid a product a lot of us have used last year for about 150 million. It was interesting to note they only expected to add about 1% to revenue growth. It may be important in terms of adding value to their most mature product, especially marketing, but it's not going to change the game for Reven revenue. And this last point, and we have talked about this with discussions with Yamini Rangan, CEO, with Brian Halligan, co founder, now chair, Dharmesha cto. We've had different saster conversations on partners over the years. Go watch these videos on YouTube, they're great. But HubSpot just noted that even today, even at 2.3 billion in revenue, Hubs partners still contribute 40% of their revenue. That's. It's a similar metric at Shopify. It's even higher for some leaders. Way too many startups, way too many founders only sell direct. They just sell direct. They don't have a partner ecosystem, they don't have a channel. There are agencies out there who the main thing they do is deploy HubSpot and also Shopify and E Commerce. That's what they do. These agencies deploy them for small businesses and they typically only pick one. There'll be a HubSpot shop or a Shopify shop and that's it. They don't learn three vendors, they don't learn six. These agencies don't have time. They learn one leader and they, they bet on them for a decade and they get paid to deploy them. And it really is a moat. And I asked Brian Halligan in an interview, one of the last ones he did with CEO, I said, is this a moat? Is this partner ecosystem a moat? And he literally laughed. He said, boy, it's a moat. They only sell Hub and deploy HubSpot. So just challenge you. I know a lot of founders get frustrated that partners take a long time to develop, that they're slow, that the leads aren't any good. But you gotta go long here. It is such a big deal in parts of the enterprise where bigger folks like Accenture and others can drive a ton of revenue for you. Rubik just filed the to go IPO. I believe they said over 70% of their revenue comes from partners in the channel. Over 70%. But it's not just enterprise. It's true from SMEs, it's just different. It's not Accentures selling small business products. It's little agencies selling HubSpot and Shopify and others. And you want to own that. You want to dominate that market like HubSpot does. Wow, what a story. HubSpot is the full package. It has an incredible revenue multiple over 10x. It's gotten super efficient, almost 20% operating margins, and it's still adding over 20% to its net new customer base. At 200,000 customers and 2.4 billion in ARR. That's what we all should aim for, folks. Pretty cool to learn from.