Animoto Revenue Math: 130,000 Subscribers, 25% Churn, 24-Month Payback

The price changed more visibly than the count. At launch it was “$3 a video or $30 a year for all you can make.” “We just kind of made that up,” Hsiao said, “because no one else was really charging for stuff.” By 2019 Animoto sold three plans “ranging from $100 a year to $500 a year,” free to try, with monthly billing available and the middle, Professional plan as the sweet spot. The customer changed too. Early on Animoto served “basically kinda like anyone who wanted to create video”; by 2019, Hsiao said, “Where we’re kind of betting is on the business customer side.”

A quarter of the revenue churns out every year

Asked about churn, Hsiao gave the long answer first. Roughly “20% of folks who come in will actually just stick around, you know, with us forever,” he said, while the rest come and go with their needs: a small business wants a homepage video now and may be ready for Facebook ads “in six or twelve months time.” He knew it wasn’t a number: “So I know that’s kind of like a non answer, but...” Latka asked for the past year’s gross revenue churn, offering 20%, 30% or higher. Hsiao: “Yeah, probably about 25%.”

Expansion didn’t close the gap. Asked whether net revenue retention was above 100%, he said, “I’d say it’s close,” and pointed to where Animoto did better: “our growth kind of comes more from top of funnel and finding new customers. I think we could actually honestly do better and kind of like the win back or retention side of things.” Animoto had teams on upsell and win-back, but his bet for the fix was the market, people “actually realizing that they need to do video more.” With revenue churn at about 25%, Animoto had to replace roughly a quarter of its revenue each year before it grew at all, which is why the acquisition numbers below matter.

Paying for growth: a $250 ceiling and a 24-month window

Pressed for a growth channel most people wouldn’t expect, Hsiao said, “It actually is word-of-mouth,” which Latka called “the most boring answer you could possibly give.” The second answer was the channel Animoto could steer: “direct paid marketing primarily on, you know, on on Facebook, on Instagram, on on social, and using video,” made with its own product. Latka’s guess of a million dollars a month in ad spend drew only “It’s probably up there around there,” a hedge rather than a budget.

The unit economics came in Hsiao’s own words. Latka fixed the account at $250 a year and asked what Animoto would pay to win one. On average, Hsiao said, “we should be willing to pay up to $250 to acquire, you know, a new customer,” and the company would “run things pretty tight around that.” Latka offered a twelve-month payback. Hsiao corrected him: “We kinda use a twenty four month payback period.” He described how the window grew:

1. Twelve months first. “So we started with twelve months and then as we felt comfortable that we were reliably getting that cash back, we could extend to a year and a half or two.”
2. Then 24, backed by cash. “we’re confident enough in this channel, and we have enough cash in the bank that ... we can extend to twenty four months.”
3. Never the only channel. Paid social was “a dominant channel,” he said, but not the only one; if it were, “we might be a little bit more kind of risk averse.”

24 monthsthe payback window Animoto used on paid social in October 2019, per Hsiao, extended from twelve

The two figures don’t reconcile on their face. On revenue alone, up to $250 spent on a customer paying about $250 a year comes back in about twelve months, the window Animoto started with. Hsiao didn’t say how the 24 months was measured, and Latka didn’t ask. Latka’s closing recap then turned the numbers into “about $500 to get a new customer for two year payback period.” Hsiao never said $500; his figure was up to $250. For context, see CAC benchmarks.

The funnel numbers that don’t add up

Latka then went to the top of the funnel. Website traffic, Hsiao said, ran “in the millions” a month, and new business trials averaged about 150,000 a month. “We have about, like, a 7% conversion rate.” Latka did the next steps out loud: “So call it 11,000 convert to paid?” and “If you get 11,000 new customers at an average price point of $250 a year, you’re basically adding almost $3,000,000 in new ARR every month.” Hsiao answered, “Yep. We like it.”

Hsiao’s two inputs multiply to about 10,500 new paying customers a month, roughly 126,000 a year, nearly the whole paying base he had described. At $250 each that is about $31.5 million of new annual contract value a year, roughly the entire run rate Latka would estimate three minutes later, which doesn’t square with growth of about 20% and churn of 25%. Hsiao had said many customers lapse and come back, which may explain part of the gap; the tape doesn’t settle it. The figures that hold are his: about 150,000 business trials a month, about 7% converting.

Cash-flow neutral almost from the start

The 24-month window was affordable because Animoto didn’t depend on outside money. “Pretty much from day one, we have run basically a cash flow, call it neutral business,” Hsiao said. “So we were always, we’ve always been making money.” Raising, in his account, was only ever “to kind of try to take advantage of some spurts of growth.” Asked what margin that implied, he gave a hypothetical rather than a result: everything “we make, we basically put right back in Animoto,” and the company “could probably hit, yeah, 30, 40% if we want it, but we’re reinvesting everything right now.” No margin was reported.

The public record backs the early part of that account. In June 2009 TechCrunch reported that Animoto had run cash-flow positive since December 2008, according to Jefferson. In June 2011 Michael Arrington, the TechCrunch founder whose early write-up Hsiao credits with getting Animoto going, wrote that “The company has been profitable since 2008.” Latka’s 2019 recap called Animoto “profitable”; Hsiao’s own word for it was neutral, with everything reinvested.

Funding

$30 million announced, “in the twenties” by his count

Animoto’s four co-founders started it on the side, some still working in TV in New York; the first code came in 2006 and the site launched in 2007. Friends and family in the Seattle area wrote checks “of like $25,000 and $50,000” on a pitch Hsiao still remembers: “you probably will not see this money back, but if you love us, give us this money and help us chase our dreams.” He put the round at “a few hundred thousand dollars”; TechCrunch put it at $600K. The next raise ran into the 2008 crash: the founders “were sitting in waiting rooms at Sequoia and other places, and then everything fell apart.”

Asked for the total raised, Hsiao said “just over like 20,000,000 or something like that.” Latka had the round sizes from his own research, “the Spectrum one was 25 and the Madrona one was 4.4,” and Hsiao agreed with his sum: “Yep. About 30,000,000. You... You’ve done your research.” Latka suggested the gap was secondary, “call it $5,000,000 to $10,000,000” of Spectrum’s round going to early shareholders, employees and founders. Hsiao confirmed that “Some of those went to secondary,” answered the range with “Yes. Yes.” and went back to his own framing: “we technically raise, yeah, is probably in the in the twenties, yeah, total.” He never gave an amount for the secondary.

TechCrunch put the total at $5 million after the 2009 round and $30 million after the 2011 round; $0.6M + $4.4M + $25M = $30M. Hsiao’s 2019 count of what Animoto “technically” raised was “in the twenties.”