ClickFunnels reached $60M ARR, 5X-ing in 18 months

by George Papastergiou
December 23, 2017

Nathan: Over on my desk today is Russell Brunson and Todd who works with him at ClickFunnels.

Over the past 10 years, Russell has built a following of over a million entrepreneurs, sold hundreds of thousands of copies of his books, popularized the concept of sales funnels, and co-founded a software company called ClickFunnels, that helps tens of thousands of entrepreneurs quickly get their message out to the marketplace.

Russell, Todd, are you ready to take us to the top?

Russell: I'm ready.

Nathan: All right. So, Russell, kick us off here. For the folks that have not heard about ClickFunnels, what do you do and what's your business model?

How do you make money?

Russell: So Todd is my co-founder in ClickFunnels. He's the genius and the brains that actually built it and I'm the guy who gets to talk about it all day long.

And, basically, it's software that helps people build their online sales funnels. We're almost 55,000 active members right now paying anywhere from $100 to $300 a month, and that's kind of what we do.

Nathan: You said $100 to $300 a month?

Russell: Yup.

How it all started

Nathan: That's great. And so, Todd, quick question there. This is right off the bat. There are a lot of guys out there that are like very, very, very mini versions of Russell.

They're the business guy with like an idea, and they're like, "I just can't convince the technical person to build this thing. It's gonna be a billion-dollar business. I can't convince the technical guy." What did Russell do to make you go, "Okay, I'm gonna ride this guy. I'm going all in?"

Todd: Oh, well, I've been doing marketing stuff for a while doing some online tools and whatnot, and I met Russell years ago and just immediately was like, he was looking for a partner on a project.

I immediately jumped in and was super excited to work with him. He was obviously a very genuine person, someone that really knew what he was talking about when it came to the marketing side, and I effectively worked for him for free for a year, and ended up just deciding to dive all in and build what we could and make a difference in the world, so…

Nathan: And, Russell, when you first created this, did this come from your own problem? You built it for yourself I imagine?

Russell: Yeah. In fact, the time that Todd was working for free for me, he was building like site after site after site, and then one day…he was in Atlanta, I live in Boise.

He'd flown out for the week, and he's probably tired of me having him do so much stuff. He's like, "We should build software that does this whole thing." I'm like, "Dude, everyone has tried that. Like, it's not a unique idea. It's just not possible." And he's like, "I think we could do it."

So, we sat in front of a whiteboard for an entire week and mapped out like what we wanted ClickFunnels to be. It was cool because Todd was like, "No, can't do that, but, yes, we could do that. We could do that. We could do that."

And he was bringing his own ideas in. And then he went back home and built it. And, obviously, he did an amazing job.

Nathan: And let's fast-forward. So, first off, when was launch year?

Todd: Let's see. We've been like just over three years. When was that?

Nathan: So, 2015. And bootstrapped or have you guys raised capital?

Todd: Completely bootstrapped

Nathan: Russell, you get a total high off of seeing email in your inbox, you know, "New York-based VC interested in a chat." And you just must love either clicking delete immediately or writing back and saying, "We don't need the money."

Russell: I always forward them to Dave actually. I'm like, "Yeah, yeah. Dave, talk to these guys." It's been fun because, like, everyone who grows business is based on that.

And it's like, when we started we didn't have anyone who wanted to give us money and then we were profitable from day one. Extremely profitable.

It was just…you know, it's fun because, like, we use our software to sell our software and because that is profitable and it's… we have never had to pull to that direction, it's always fun hearing though what they... irritating just to find out what they think we're worth and all that kind of stuff. It's just kind of fun.

Nathan: It is interesting. So, about... this would've been... the last time you came on the show would've been about 18 months ago. When you shared at that point, you were right about 10,000 customers paying an average revenue per month of about 120 bucks.

So, you were about over 1.2 million bucks in MRR and obviously well over 14 million bucks in ARR. I think what you just shared with me is you've basically 5X that at least in terms of customer account, right, up to 55,000 that's paying, right?

Todd: Yup.

Nathan: Okay, 55,000.

Todd: Yup, or 54,000.

Nathan: Fifty-four thousand. And so, Todd, that comes out to, what, about 5.5 million bucks per month? And then, obviously, we can multiply it by 12 to get about, what is that, 60 million annually?

Todd: Right at it, and that doesn't include a lot of the one-off sales. We do a lot of coaching programs and whatnot on the backend as well, but when it comes to just directly from the software, yeah.

Nathan: Russell, tell me how you manage the one-off stuff? So, most people that are doing SaaS they obviously notice 87%, 89% gross margin. It's sexy. There's no refund rates, right, on one-time big sales.

Why even do the one-time stuff?

Russell: Honestly, the biggest reason is it keeps me sharp. It helps me understand what our customers want. Like, with that many customers we can't serve them all so we have really high-end coaching programs and bring the top-level students in.

And I have a chance to work on one-on-one daily and I get to understand their frustrations, their problems, things that are good, what's happening, like all the innovations.

Like, we're always on the cutting edge of all marketing sales because we've got 100 entrepreneurs working like one-on-one with me, because I'm able to see like, "Oh, wow, in the dental industries, what's happening? This industry is what's happening, in supplements this is what's happening."

And we're able to keep the software three or four steps ahead of what everybody else is doing because of that. So it gives us a really…it's just a really unique insight that we get that I don't think anybody else typically gets with their customer base.

Nathan: You should be able to pay to do research. You're getting paid to do research is how you look at it, right?

Todd: Absolutely. Exactly.

ClickFunnels staying lean

Nathan: And what's your team look like today? How big?

Russell: We are about 130 employees right now.

Nathan: Okay. And break that down for me. So, how many folks are servicing those one-times versus on Todd's team doing engineering?

Russell: What's the engineering team right now, Todd? How many?

Todd: We're only about 15 guys on the engineering team. We have a huge support team at this point... Probably about 80 people, about 80 to 100.

Nathan: Todd, why do you hedge that, when I asked that question? You say, "We're only 15."

Todd: I think that we're really lean and efficient when it comes to the engineering side of things. We are very focused on what we know we do well. And the things that we don't, we set aside and integrate with third parties to do it.

And I think that's been a very intentional thing from the start. If we look at our competitors in the space of even software companies that do 20% of what we do, they've got less customers and teams that are four times the size.

And I think that they're trying to micromanage and do every single thing whereas we focus on what we do well, basically.

Nathan: That makes a lot of sense. Yeah, the average revenue per employee across all the… about a thousand B2B SaaS CEOs I've interviewed is about 137,000 bucks annually. You guys obviously are significantly above that if you divide the 130 and the 60 million.

So, look, the best company is one with very little expenses and a lot of revenue, right? And so, hey, if you keep headcount low, it works.

Aggressive onboarding and Churn

Nathan: Take me into some of the other economics people look at in this kind of small business to mid-market SaaS company. So, churn is obviously critical.

Russell, I went through before, as some of my research team go through your cancellation process, which is so strategically done. I encourage people to sign up for ClickFunnels just to cancel it real quick, and reverse engineer Russell's cancellation funnel. It's really well done.

But, Russell, what have you been able to minimize churn to?

Russell: You know, it's interesting because that reverse, like the cancellation funnels were Todd's idea. It's like, we do funnels to get customers. But, why couldn’t we do funnels to, like, keep them at the end? And one day, we talked about it for a month, and one day he got upset and just threw it together himself, and churn just dropped dramatically.

So, our churn numbers are probably a little different than some people, just because we do have a free trial where we take credit cards, so we're super aggressive on the frontend. And so, I don't know exact numbers. Do you have the exact numbers, Todd, about?

Todd: Yeah, overall churn is about 10% which is, I know that sounds high...

Nathan: That's monthly logo or annual logo?

Todd: Monthly.

Nathan: Monthly logo.

Todd: And we see the bulk of all that churn happening within the first two months, and it's primarily because of what Russell is saying.

We bring people in on free trials, whereas most of the customers from some of the competitors would be doing, you know, they'd be opting people in as opposed to actually taking their credit card on the frontend, and then only the people that are serious in actually using the product is ending up into paying customers.

Whereas on the marketing side, we're very aggressive in trying to help people from day one to jump on board and do that, which is why we've also focused a lot on onboarding and offboarding and that kind of stuff.

Then we see much, much lower churn a year out. Like if you look at our cohort analysis and whatnot, for about a year on we have almost no churn.

So, once customers are actually using us and actually having success with us it ends up being very low, but upfront that's the initial part that we've been focusing on and working really hard on.

Nathan: You gave me past the year and you gave me less than two months, but give me the middle part. So, after someone takes me for two months, what's churn drop from ten down to what about?

Todd: About 4%.

Onboarding hacks

Nathan: Okay. So, that's obviously significantly more healthy. The second question here, because you guys do a lot obviously with onboarding, what's the... You know, Facebook was famous for saying, "We know we've gotta get users to add 7 friends in 10 days if they're gonna be sticky," right?

I imagine, based off how data-driven you guys are, you're fucking crazy, you probably know what you have to get users to do in the first X amount of time to make them sticky. What is that thing?

Todd: There's a bunch of cool... It's been fun…

Russell: The whole game we have now is they can find out those things and then we add them in. So, one of them, we found if they setup a custom domain, like their likelihood of, I don't know the exact numbers, it drops dramatically.

So, now, when you're going through our onboarding process, first thing we do is we actually... we set the first domain for them and we actually pay the bill for that because as soon as they have a domain they're gonna stick. If they integrate SMTP, like an auto-responder into it, then they stick. Share the other big ones, Todd.

Todd: I mean, those are two of the main things. We've actually been working on building out a what we're calling Show Me How.

It's kind of a walkthrough process where Russell comes in and he actually takes people through from... Russell pops up on a video and gives you, “Here's your first three steps you can follow to do…”

Nathan: Russell, you like popping up on videos, don't you? You love those things. Todd, in the early days, did you go, "What is Russell doing? I just wanna code. People don't need to see him popping up in the middle of my beautiful onboarding process?"

Todd: A little bit. It definitely crossed my mind a little bit.

Nathan: It works. It works.

Todd: But the results show for themselves.

Russell: It's crazy because, like, we found little things that even just getting people to consume the software was a big one.

One of the biggest things we did initially to decrease churn is, if someone kind of came on, it was like, "Hey, here's the 13-minute demo that'll show you how to use the software. If you watch it we'll send you a free T-shirt," and that alone dropped churn by like, just a huge dramatic decrease.

So, getting new customers to actually use the software and plug in things and try other things like that…

Todd: I love that.

Nathan: Well, Russell, I know both of you guys touched, or at least in your past, you've touched kind of the info product space, and you know… I mean, I know many big kind of folks that sell these online courses. They never talk of... they say, "Launch was 10 million."

They never talk about affiliate fees where, you know, 60% of that, so drop it to 40% immediately. Oh, and then by the way, they had a 60% refund rate over the first 60 months. So, keeping that churn low is obviously so critical.

Last question here on onboarding I have for you guys. What's something you guys thought was really important for new people to do, and, like, built your early prototypes to get them to do X activity, and you learned after some cohort analysis that actually wasn't important for people to stick?

Todd: Nothing off the top right now. There's definitely been like frontend conversion funnel type stuff that we've done and we thought it would really be successful and wasn't.

Nathan: Name one.

Todd: Good question.

Nathan: You just know it's happened.

Todd: I'm trying to think off the top right now.

Testing

Nathan: It's okay. Okay, let me ask you a different question about testing. You know, I'll use Facebook again. They've been very public. They're running over a billion tests almost monthly, right? It's incredible.

How have you guys built up the system for launching and running new tests? What sample size do you wanna go through every test before you say, "Yes, that's the clear winner. Let's stick in and create a new B version?"

Russell: The game is kind of fun, so what happens is, at least on the frontend sales size, I build like the best thing I can dream of based on all my experience and I try to make it as good as I can. And then Todd will come in and then try to beat me.

So, that's kind of the process. In fact, we wrote a whole book which is showing all of our split tests.

Nathan: That's a good process.

Todd: Keep trying until I do, right?

Russell: That works.

Customer Acquisition Strategy & Cost

Nathan: Talk to me, Russell, about acquisition. So, customer acquisition costs, what's that at for you guys currently?

Russell: So, this has been like my favorite thing. As we talk to the VCs, they don't understand this. We have like our frontend funnel, right, where it's like people come on clickfunnels.com.

They sign up and our acquisition costs, depending on ads…I mean, it changes on every ad source, every…so many things. But on the low-end we're looking at 35 to 40 bucks to acquire a customer, high-end about $120 to acquire a customer.

But then, if you look at our...that's like just such a small piece of our strategy. The bigger piece is like our frontend funnels.

So, for example, like my books, we have like my book that keeps people at funnels, and then they come in and that funnel is profitable upfront so we'll spend anywhere from 10 to 12 bucks on Facebook to acquire a book customer.

But we'll make $30 to $35 to the book funnel so we actually are profitable upfront and then we introduce that person to ClickFunnels.

So, most of it, like I would say probably, I don't know, 40% of the traffic comes to ClickFunnels, and somebody who already bought something, and we were profitable upfront and then we introduce them, so there's no cost at all on those people.

And then we have one of the really cool, like, growth hacking stuff Todd has built. It's like on the bottom of ClickFunnels' pages, there's a little button that say Powered by ClickFunnels.

We get tons and tons and tons, like insane amounts of people that come off of those every single day as well.

Nathan: Do you know what percent of new customers every month come from the branding?

Todd: I know that at this point, over a million dollars a month comes in just from that batch.

Nathan: In new ARR?

Todd: Not new ARR but built-up ARR.

Nathan: Got it. So, this is a tricky question and it sounds actually it might not even be relevant, but do you guys measure payback period like time to recover cash?

Todd: Not really. Our all-in cost to acquire a customer is about $130 at this point. But like Russell said, we don't really even look at it that way because that upfront media spend last month was about 130.

So, that upfront media spend, those really paid back to us immediately through these frontend one-time products that are being sold. So, we're acquiring the ClickFunnels customers but really the upfront net is effectively zero.

The Lifetime Value question

Nathan: Is the conversation when you do have them with VCs, when they ask the lifetime value got-you question, how do you handle that, Russell? You know what I'm talking about.

Russell: That was like, "Wait, what?" And I explained it again and they're like, "I don't get it." I explain like three or four times, and I had one guy, he's like,

"If that's true, that'll change the business as we know it forever."

I'm like,

"That's the whole story of ClickFunnels, like we're trying to show you the business can and should change forever."

Nathan: So, how do you answer it when they say, "What's lifetime value, Russell"?

Russell: I just tell them it's... I'm the marketing guy so I'm not as good with numbers so I just kind of tell them, like it's hard to explain that because there's all that stuff.

And if you look at the way we build our businesses, there's frontend products brings people in, there's ClickFunnels in the middle and there's the backend stuff, so it's like treating the entire frontend and backend funnel like… It's a lot.

Nathan: I wanted to see you kind of think through that process because I imagine it's tough for you. You're thinking, "If we just get the relationship with these guys, we're gonna build valuable things from the rest of their life. Their lifetime value is infinite."

Now, if you said that to the VCs they're gonna know you're full of shit, right? But you actually have executed that and you believe it.

Russell: We're doing it every single day.

Nathan: Like you really believe that. So, let's go down that path for a second, and let's say you get the customer. They're gonna be with you for a long time, and you actually... a lifetime value could be huge, a lot of money.

How do you decide how to be aggressive with CAC? Because usually the person that can spend the most to get a customer is the one that gets that customer. So why not be more aggressive on CAC?

Russell: You know, when all is said and done, it's because Todd and I are the co-founders of the business. Like all the money that we make we get to put in our pocket.

And so, it's like, we're not answering to a Board of Directors. Like, we're answering to how much money we wanna put at the company each month. And I don't know about you but I love having huge checks every single month. They're insane.

So, it's like, I can dump more to acquire customers or I can just take more of the profit off the top.

And so, it's like, we're not trying to get bought out. We're not trying to get VC... we're trying to run a business that's profitable for us, as owners. I had a finance teacher in college who told me the only purpose of the business is to make the owners rich.

And so, I kind of believe that. Like, if you do that, then it creates jobs. It pays all these other things. But for me, that's kinda my point of view.

Nathan: Let me ask one last question on that then we'll wrap up, guys, because we ran out of time here.

But, Russell, so you're… like entrepreneurs, and I've had many entrepreneurs on, ranging from guys just starting to ones about to go public with a 130 million bucks in ARR.

The question of how much money does the founder pull out, especially if they're bootstrapped, is always tough, because, usually, the ATM in their life, printing the most money, is the business.

Like, if they took money out, they wouldn't know where else to go put it. The SMP is only gonna get them 8%. Cryptocurrency is volatile, real estate is too expensive, foreign markets don't get them what they want. So, they just put it back in the company. So…

What do you do with money, if you take it out?

Russell: So, it's kind of funny. Todd has got me into cryptocurrency. Todd's a genius and I'll say it from there. But for me, it's like I'm in this business for the lifestyle. We literally…

This summer we put in nine underground trampolines, an entire football field, a volleyball court, basketball court, baseball field and a track that wraps the whole thing, so I can play with my kids every single night and the whole thing has got lights. It's like all night long.

Like, that's where I'm investing my money, in my family and my kids.

The business is growing by itself and there comes a point where it's like, I can keep reinvesting that. I can reinvest but, like, the reason I got into business was to get time freedom, to get time with our family and things like that.

And so that's where I'm investing my money, is in my family and in paying off my things, get everything stable, so if anything…if a scary day comes, like things are all paid off.

Now, I'm buying some bitcoins because that's kind of funny. Todd is much more of a better investor than me so he could probably answer that a lot more intelligently than I do.

Nathan: Todd, give me a quick answer.

Todd: So, my quick answer, I guess, is that I view the business as our green fund, right? Like, that's what we're gonna do under best case scenario, and when it comes to investing and pulling money out that's more of an insurance policy kind of thing.

So, any investments that we make in that hedges on the economy, hedges on the business, that kind of stuff.

So, essentially, like Russell said, it's based on spending time with family and creating time for your life and helping the charities that we care about and that kind of stuff as well, so.

The Famous Five

Nathan: Makes a lot of sense, guys. Let's wrap here with the famous five. Todd, first one is for you. What's your favorite business book besides one of your guys'?

Todd: Ooh, let's see. The new "Think and Grow Rich," I'd say, like a classic.

Nathan: Number two, Russell, this one is for you. Is there a CEO you're following or studying right now?

Russell: Yeah, Salesforce's founder. So, he's not CEO, but Marc Benioff and reading his books, and going deep with all his stuff right now.

Nathan: If he comes to you and writes you a billion dollar check to acquire ClickFunnels, do you guys take it?

Russell: It's funny because last week at Salesforce, on stage, our CTO asked Mark Cuban that, "What would it take to get Salesforce to write us a check for a billion dollars?" So, that would probably be the number that we'd start being interested at.

Nathan: That makes a lot of sense. Let's go to three. Todd, is there a favorite online tool you have besides ClickFunnels?

Todd: Intercom. We love Intercom actually, yeah.

Nathan: And, Russell, this last one would be for you. The first one here, how many hours of sleep do you get every night?

Russell: Six-ish.

Nathan: That's pretty good. And what's your situation? You mentioned kids, so married and how many kids?

Russell: I have five kids and they're amazing.

Nathan: Five. No wonder you have five trampolines. All right. So, five kids, and how old are you, Russell?

Russell: Thirty-seven.

Nathan: Thirty-seven. Last question, take us back 17 years, what do you wish your 20-year old self knew?

Russell: I wish I would have known Todd Dickerson back then. That would've made my life so much easier for the first decade of my business.

Nathan: There you guys...

Russell: I think trying to find co-founders as opposed to just hiring a team, for sure.

Nathan: There you guys have it. Russell Brunson, again, started building a team early on, finding his co-founder, Todd.

They have built something truly special together, founded this three years ago, now over 130 people, have over 54,000 paying customers.

That's not like a user number where only like 2% of the people pay. Those are paying customers, paying about 100 to 140 bucks a month doing almost 60 million bucks in ARR, almost 5X-ing over the past 18 months.

Super healthy growth. Russell, Todd, thank you for taking us to the top.

Todd: Thanks for having us, man.