How Moz Reached Nearly $60M in 2018 Revenue With Two Cohorts and Low CAC

Set against the $47.4 million Moz published for 2017, “just shy of 60” means growth of roughly a quarter in 2018, the year Moz bought STAT Search Analytics (announced October 10, 2018). Bird did not say how much of 2018’s revenue came from STAT. Fifteen percent more in 2019 would have put that year a little under $69 million, which is where Latka’s round $70 million comes from. The 2017 figure comes from the annual year-in-review post Bird wrote for Moz’s blog. Asked on the tape why there was no 2018 edition, she said, “It just ended up being not that important to me to do.”

Two cohorts inside 34,000 customers

Asked what customers pay, Bird split the base in two: “So I’m going to roughly lump it into what we would call our SMB segment and what we would call our mid market segment. And on the SMB side, people are paying about $1,600 in a lifetime. On the enterprise side, they’re paying about 200,000 in a lifetime.” Both are lifetime figures, not monthly or annual ones. Latka guessed an SMB customer paid “$10, $20 bucks a month”, and she corrected him: “an SMB is gonna spend about $140 a month on average.” She used “enterprise” and “mid market” for the same group and said which she meant: “So if you hear me use the word enterprise, it’s really mid market by how most people would think about it.”

The upper cohort is small. “The enterprise customer cohort is about 600 of that total,” she said, and “they’re about 30% of the revenue.” Those numbers close. Thirty percent of just under $60 million is about $18 million. Spread over 600 accounts, that is roughly $30,000 per account a year, and a $200,000 lifetime at that rate runs six to seven years, inside the “tenure of up to ten years” she gave for qualified customers. That is our arithmetic on her figures, and it applies a mid-2019 split to 2018 revenue.

The self-serve side does not close as neatly, and the reason is the next section. About 33,400 self-serve accounts at $140 a month would annualize to roughly $56 million. That is nearly all of 2018’s revenue on its own, when that side was about 70% of it, or roughly $42 million. The count is a mid-2019 snapshot rather than a 2018 average, and a count taken at one moment overstates a year of billing when many of the accounts are in their first months, the stretch where, by her account, most of them leave.

The churn curve: steep for months, then under 5%

Moz’s self-serve funnel is organic. “We practice what we preach, which means we get all kinds of people coming to our funnel,” Bird said, and many of them are business owners who expect to sort out their own SEO in a month. “So often they will come in, they will play around, and they’ll quickly discover, oh, this is a real this is a real job, and it’s not really for me. And so they’ll churn out.”

She said “the churn curve on those first, like, three, four, or five months is really, really high.” Latka offered two numbers, “Like, 80%, 40%?”, and she took the higher one: “It’s closer to that 80%.” She did not say whether that is the share of a sign-up cohort lost or a monthly rate. She said only that the curve is steepest at the start (“Month one is real bad”) and then levels off: “when you get past month nine, we have an annualized churn rate of less than 5%.”

Latka came back to it later. Her $1,600 lifetime value at $140 a month, he said, “implies an eleven month basically life, which is I mean, essentially 9% monthly churn, right, which is really, really high.” That is his arithmetic, and she did not adopt it. She reframed the base instead: “two thirds of our customers are unqualified at a gross level, just if you look at how the funnel dynamics work, but two thirds of the revenue are coming from our qualified customer.” Those qualified customers, she said, “have a tenure of up to ten years and an average churn rate of less than 5%”, and when Latka asked whether that was annual or monthly she answered “Yeah, annually.”

Neither sub-5% figure is a churn rate for the whole base. One covers customers who make it past month nine, the other qualified customers. Her case for living with the early losses was cost: “it’s only a big problem if we were spending a lot of money to acquire them, if there was a heavy cost of service or a heavy distraction of which there really isn’t because they’re very self-service.” And by her account, “Most of them leave with a positive experience.”

Moz’s CAC: 5.5x LTV to CAC, paid back in month three

The low acquisition cost is what makes that churn affordable. “Our cost of customer acquisition is so low that we have a 5.5 times LTV to CAC ratio on that SMB side of the business, and we get full payback, including COGS, in month three.” Both figures are hers, and both cover the self-serve side only. The sales-led side, she said, “is run very differently and the economics look very different.”

Latka turned the ratio into dollars on the spot: “if LTV is 1,600, it would mean CAC is about two ninety on a $140 a month. Two to three month payback period.” She did not confirm the $290. Her reply was that “it’s a very, very profitable side of the business, but it’s a very noisy side of the business.” His division is right ($1,600 ÷ 5.5 ≈ $291), and her month-three payback fits it once costs are counted. Moz’s 2017 review put cost of revenue at $11.8 million on $47.4 million of revenue, a gross margin of about 75%. Applying that company-wide margin to the self-serve side, a $140 month returns about $105, and $291 is recovered in a little under three months.

Self-serve also meant no salespeople on that side: “You don’t talk to a single human being,” she said of signing up. The cash it threw off paid for the side that does have salespeople. “We’re EBITDA positive, we’re cashflow positive,” she said, and “we use the cash generated from the self-service side of the business to fund the cost of acquisition and for that more stable enterprise customer base, which is why we don’t need funding on the horizon.” Moz had raised “About 30,000,000” in total, she said, and its last round, by Moz’s own announcement, was a $10 million Series C in January 2016.

When Latka played a private-equity buyer who would pay only for the qualified two-thirds of revenue, she turned the argument round:

“…the money that we make from the unqualified cohort covers not only their own cost of customer acquisition, but the whole qualified cohort as well, and allows me to cover the cost of customer acquisition for these whole other customer segments…”

Sarah Bird, CEO of Moz, July 2019

Six quota carriers, and a sales channel bought in 2018

Moz had “about 180 people” at the time of the interview. Asked how many carried a quota, Bird answered, “Oh my gosh. Do you know? Six.” Latka asked how Moz set a rep’s new-bookings target against total pay, noting that many companies use five to seven times and some ten. Moz was “targeting at 5X.”

Direct sales was young. “We’re relatively new to the direct sales channel, I would say maybe in the last three or four years,” she said, and its newest piece came by acquisition: “We acquired a company last year that is all direct sales. That company is called STAT.” Moz announced the STAT deal on October 10, 2018. Its January 2016 funding announcement had already listed “adding sales and account management folks” among the uses of the money.

What keeps a $140-a-month customer

Retention work on the self-serve side ran through the product, not through people. The biggest lever Bird named was getting a new user to set up a campaign, a site tracked over time: “We find if you’re tracking over time, you’re more likely to stay.” Moz pushed that with in-product notifications through Intercom and lifecycle emails through HubSpot, and offered a one-on-one walkthrough to any customer who asked. The walkthroughs sorted customers on their own: “there is a wonderful selection bias that happens. So people who are more likely to say, yeah, I want a walk through are people who also tend to be more heavily invested in marketing and marketers.”

Expansion was the weaker lever. “So we don’t have a lot of expansion dynamics like other businesses,” she said: customers tend to come in at the middle pricing tier, where the free trial is, and stay there. Agencies were the exception. An agency might start on Moz Pro “at that $149 price point” and go on to buy STAT or the local product, so “the expansion dynamic we see is more cross product than within products.” Moz’s archived pricing page from that July listed the Medium plan, the Moz Pro tier with the free-trial button, at $179 a month, or $143 a month paid yearly, so her $149 matches neither exactly. Asked for gross revenue churn over the past twelve months, she said, “I don’t have the actual numbers off the top of my head for that.” On net revenue retention above 100%: “In certain segments, absolutely 100%. Other segments, absolutely not.” In STAT, “yes, absolutely.”

Since the interview

On June 4, 2021, Moz announced on its blog that it had been acquired by iContact Marketing Corp, whose group then operated as a subsidiary of J2 Global. Moz’s about page now describes iContact as “a subsidiary of Ziff Davis (NASDAQ: ZD)”, and Moz’s blog describes Bird as its former CEO. The exit questions Latka pressed on the tape, and the figures Ziff Davis later filed for the deal, are covered in a separate post on Moz.