SerpStat Grows Revenue From $190k in 2016 to $840k 12 Months Later

by Nathan Latka
December 7, 2017

Nathan: Hello everybody. My guest today is Artem Borodatyuk. He's the founder of Netpeak group and co-founder of seed fund, Wannabiz. He's focused on the development of B2B SaaS product companies.

His first such SaaS company is an all-in-one SEO platform for professionals, called serpstat.com, with 2000 customers and 100,000 users.

What does Serpstat do and how do you make money?

Artem: Yeah, sure. I will tell you shortly about a small story of this company. Serpstat was born as a keyword research tool in Netpeak agencies that I founded when I was 20 years old. And Netpeak Agency now is the largest SEO agency in Eastern Europe, with more than 400 employees.

Nathan: When you say it's the largest SEO firm in Europe but then you use 400 employees as a metric, employees just mean you have a lot of cash burn. Right? So is revenue also reflective of...?

Artem: When you try to compare SEO agency, you have, you know, some metrics that will be public for every agency. So in Eastern Europe - I mentioned Eastern Europe, not full Europe - we can be comparable only with this metric because no rating exists with cash.

Nathan: So how many...at Netpeak, how many customers are you working with?

Artem: We work right now with top projects, this is more than 300 projects in our area: Ukrainian market, Russian market, Khazastan and Bulgaria. So we're in four markets right now.

Nathan: And what year did you say you launched Netpeak in?

Artem: When I was 20 years old, 10 years ago, I founded Netpeak. It was a bootstrapped company.

Nathan: Okay, so that was in - we'll call it - 2007, bootstrapped. And you still bootstrap that or you raise capital for it?

Artem: For agency, no, because it's agency business. And working with the top projects in Netpeak we were faced a problem. There was no competitive analysis in keyword research tool with Ukrainian database with data for Ukrainian market. And for instance, I can get information in five seconds. That domain name, nathanlatka.com has at least 1,400 keywords in top 100 of Google Chrome in the US. Or for example, your site has...

Nathan: Is that good, by the way?

Artem: Not bad.

Nathan: I like you Artem. You give it to me like it is. Last question on the agency before we start talking about Serpstat.

So, in 2016, just the agency, what was the total revenue?

Artem: I cannot share this information, but it's more than $10 million.

Nathan: But less than $15 million? So between 10 million and 15 million?

Artem: We're between 10 million and 15 million, yeah.

Nathan: Okay, wonderful. Okay now, tell us about Serpstat. So, it's an SEO tool. Why did you decide to launch it out of the agency?

Artem: We launched this tool for ourself, for our own purposes, because we need such information as I tell you, for example, about nathanlatka. For example, also you have...nathanlatka.com has 11th place with the keyword "How to build your SaaS company."

So if I want to be SEO specialist and work with nathanlatka.com, I need some information about your positions, about your search success and search success of your competitor.

So at that moment, we had no such information at all. So we had to create Serpstat for our own purposes. Serpstat at that time had no dedicated team at all when we started.

From this moment, Serpstat started its growth. And as...

Nathan: Sorry, what year was that when Serpstat became independent?

Artem: In April 2015.

Nathan: Okay, so that's kind of like founding year, right?

Artem: Yeah. So it was independent company, independent office, team, etc.

Nathan: And so just to be clear, what year did you start building it inside the agency, your first line of code written?

Artem: Inside the agency, we started building in 2013.

Nathan: Okay, 2013. So, two years after you started coding it in the agency, you spun it out as its own product. And so again, give me a specific example... Well you did ,I think, with nathanlatka.com. So, tell me more about the history here. So have you bootstrapped it or have you raised capital?

Artem: We had money in Netpeak for Serpstat growth at the beginning. But we had no dedicated team, so it was...

$5000 burn rate for this company

Nathan: Per month?

Artem: Yeah, per month.

Nathan: Total expenses?

Artem: Yeah, for developers. And we had no dedicated team in terms of support, customer success, sales guys, it was true for Netpeak only. And then we, in 2015, decided to start it like independent business and we very soon became leaders on the Ukrainian, Bulgarian, Russian market.

So in 2016, we received from local VC fund, Digital Future, $200,000 for 15% stake of Serpstat.

Nathan: Okay, and is that all you've raised so far?

Artem: Yes.

Nathan: Okay. And that was in 2016?

Artem: We are near $1 million in recurring revenue.

And we are profitable because we are located in Ukraine in Odessa, so we very easy can hire best developers and...

Nathan: Hey, Artem, sorry. Let me go back to that question.

You raised the $200,000 for 15% of your company in 2016 right?

Artem: Yeah.

Nathan: Okay. And then you just told me that your ARR, your annual recurring run rate has passed $1 million. So that means last month, you did about $88,000?

Artem: Almost, almost. We're near this right now in this month.

Nathan: Okay, so what'd you do last month in total revenue just on Serpstat?

Artem: We were $70,000 MMR last month.

Nathan: Got it. So you think this month you'll break 88,000?

Artem: Yes.

Nathan: Got it. So what's driving...I mean tell me like how are you acquiring customers for the company?

Artem: To be honest, our main method to use content marketing. We have a pretty strong blog and we have some famous guy, Igigor[SP]. Igigor is our evangelist that makes a lot of videos, webinars, etc.

Nathan: Do you pay him?

Artem: Sure, of course, he's our employee.

Nathan: Got it. And how many employees are you at today?

Artem: We have 52 employees in Serfstat and almost 20 employees in our marketing department.

Nathan. So just to be clear, you have 5-2 employees, so 52 in Serpstat. And of those 52, 20 are in your marketing department?

Artem: Yeah, absolutely.

Nathan: Got it. Okay, very cool. And still only...really just to be clear, the total money you have in the company is the $200,000 from 2016 right? The rest is bootstrapped?

Artem: Yes. It was bootstrapped.

Nathan: And then so tell me what...for someone who's listening right now, he's thinking about SEO, that's thinking about SEO tools, what's the average customer paying you per month?

Artem. Average check per month, our Plan B...Plan B is $69.

Nathan: Okay, got it. $69.

What do you have in terms of total customers?

Artem: I can't share you exact number, but it's between 1000 and 2000 customers, paid customers. And we have 120K users on freemium model.

Nathan: Well, I mean look, you gave me the monthly ARPU of a customer and you told me your MRR was about $70 grand, so if I divide 70 bucks into $70 grand, it comes out to about 1000 paying customers. That sounds about accurate, right?

Artem: Yes, because in MRR I can calculate not exact number of every payment because, you know, the recurring and revenue is different.

Nathan: No, but if the average customer is paying you $70 per month and your total monthly revenue is $70 grand, I can divide..

Artem: Yeah, but that is... I got you, but it's not exact number of our customers because MRR and revenue and other...it's different.

Nathan: How is monthly recurring revenue and revenue two different things? They're the same thing.

Artem: In our region, you can pay but not pay with recruiting model. For example, I can money to you in Ukraine and next month from my card, a self-start cannot take some money from this card.

Nathan: I don't understand.

Artem: Sorry, I will tell you. In US, you used to use recurring model for payments. So, in Ukraine it's not very famous to pay monthly with recurring model.

So for example, we can get revenue. But next time, we will not take the same amount of money from the same card. So we will not calculate the sum as recurring.

Nathan: So your churn is really high, is what you're saying?

Artem: It's not churn because you must come to our service and continue our payments manually. This is the difference between recurring and revenue. It's not very interesting thing, but in our business, we call recurring and revenue as two different types of income.

Nathan: So, last month, let's say a thousand people were paying you. If you don't add new customers, right, how many customers pay you like a second month? Do you lose 10%, 5% month-over-month?

Artem: Month-over-month, we lose near 1%-3% of our users.

Nathan: Okay, okay, got it, so... And then just to be clear, I wanna make sure I understand you. So what you're saying is in Ukraine, there's not an easy way to bill people monthly automatically. They have to come back to your tool and manually put in their card again.

Artem: Absolutely. It's the same in Russia, it's the same in our regions. We are the top one on our markets.

Nathan: Stripe doesn't, like, let you...doesn't work in Ukraine? None of these models work?

Artem: No other models work, yeah.

Nathan: Interesting. Okay,

What are you paying to acquire customers, fully weighted?

So include your content marketing, salaries and everything. What's it cost you?

Artem: To be honest, we cannot calculate this exact number, how we pay for every customer or for every lead. So, I cannot answer on this question.

Nathan: You said you have 20 people on your marketing team? So let's say at an average salary of...I'm making this up because I don't know what Ukrainian salaries are. But let's say, you know, $50 grand a year right, so you're paying them each about $4 grand a month.

So, $4 grand times 20 people is $80,000. And then add in any Google AdWords spend or paid marketing to that and then divide by new customers from that month. That would give you a fully weighted CAC.

Artem: Okay, if you want such formula, we'll pay near $2 per one registration.

Nathan: Okay. And how many registrations do you need for a new paying customer?

Artem: We need 10 registrations to have 1 customer. So we pay $20 per user.

Nathan: Twenty bucks. That's pretty good. And then on average, you said they're paying you 70 bucks per month. So you're getting paid back almost instantly.

Artem: Yeah, sure.

Nathan: Interesting. What do you...have you done things like lifetime value calculations?

How long do you think the average customer stays with you?

Artem: We track that in our admin system and we got near $500. It's our lifetime value.

Nathan: What admin system do you use, by chance?

Artem: It's developed by ourselves, so it's our own admin.

Here are LTV benchmarks from other companies:

Nathan: Got it. And then give me a sense of what you are doing in just purely paid spend each month. So Google Ads, Facebook Ads, what did you spend last month on just paid stuff?

Artem: We have an interesting story, because we spent near $10,000 per month to Google Adwords. And then we created very interesting system for web analytics, and we cut 80% of our spends.

So we spend right now only $2000 per month, and save just almost everything that we got from the Google Adwords in terms of payments, in terms of money. So, we spend right now near $2000 to Google Adwords, also near $1000 to Facebook Ads.

Nathan: Got it. And what...is your whole team based out there? You said you're in Ukraine?

Artem: We have three offices. We have office in Odessa, Ukraine - it's the best city in Ukraine, I think - the Black Sea, also in Kiev, Ukraine and Cherkasy, Ukraine. Yeah.

Nathan: And so how many...and then, again, so all 52 people are based in one of your Ukrainian offices?

Artem: We have 52 employees in Odessa, 40 employees. We have 40 in Odessa, Ukraine.

Nathan: Got it. But all 52 of your team members are somewhere in Ukraine.

Artem: Yeah, everyone is in Ukraine.

Nathan: You don't outsource anywhere else?

Artem: Right now not. We have plans to expand globally. And we'll hire salespersons in Canada in our plan, and I will switch my place where I live and we'll go to US.

Nathan: Good. And do you guys have any weird cost of goods sold? Or does your gross margin like most SaaS companies in the 80% to 90% range?

Artem: Sure. Of course, of course, of course. We spend near $5000 from proxies to servers. So we have a lot of spending on such stuff because we need...we have very difficult products.

And I can tell you digits. For example, we have more than 12 terabytes of disk space for storing the data. We have 200 million keywords in 16[SP] original databases. We have almost 6 million user queries per month. So we have a lot of infrastructure for such methods.

Nathan: So, if I add up kind of all of your hard costs - server expenses, processing fees, things like that - does that make up about...

$10,000 per month in hard costs?

Artem: I think almost.

Nathan: Okay, so maybe a little less. Okay, good. So, if you're making $70 grand per month and your hard costs are somewhere in the $8000, $9000, $10,000 range, you still got, you know, gross margin somewhere in the 89% range, which is good.

Artem: Yeah, it is good. But to be honest, everything will be in the future, because right now we are only preparing to fight with old leaders on this market, in this SEO tools market. So at this moment, we are only at the beginning.

Nathan: Now, this time last year, so July of 2016, how much revenue did you do in that month?

Artem: When we started, you mean?

Nathan: Just in the month of July 2016, so one year ago. How much revenue did you do in that month?

Artem: We tripled, so revenue was near $20K per month

Nathan: Got it. And so 20k, again, about a year ago. You're now doing 70K, so you've almost tripled. What was total revenue last year, do you remember?

Artem: No, I don't remember. I need to check it if you want. One second. It was near 190K per year.

Nathan: That's great. So you obviously will do much more than that this year, which is great. And then 2015, you didn't have revenue, right, because you just spun it out?

Artem: Yes. And a year ago, we had a team from 10 employees.

Nathan: Well, Artem, you're sitting on a rocket ship. The growth is great. Let's wrap up here with the Famous Five.

What's your favorite business book?

Artem: My favorite business book? It's very funny because it's not a business book. It's a book from Lee Kuan Yew. Do you know Lee Kuan Yew? He's a famous guy. He built Singapore. "From Third World to First: The Singapore Story." This is the name of his book. He built a powerful country from nothing.

Nathan: Wait, what's the name of the book?

Artem: "From Third World to First. The Singapore Story." This is the name of his book.

Nathan: From Third World to First? Very cool.

Artem: This is the guy that built Singapore.

Nathan: Number two. Is there CEO you're following or studying right now?

Artem: I'm a fan of Elon Musk.

Nathan: Of course. Number three, is there a favorite online tool you have like a Acuity Scheduling?

Artem: My favorite tool. Google Spreadsheet. If I need something to do, I will start with a new spreadsheet.

Nathan: Number four. How many hours of sleep do get every night?

Artem: To be productive, I need at least eight hours of sleep. Nathan: And what do you get though?

Artem: Seven, eight, almost. Nathan: Okay. And what's the situation? Married? Single? Do you have kids?

Artem: I'm married, but I don't have kids.

Nathan: And how old are you, Artem?

Artem: I'm 32. Nathan: Thirty-two. Last question. Take us back 12 years. What do you wish your 20 year old self knew?

Artem: Good question. I would tell to 20 years old myself to find an experienced entrepreneur as a mentor. I wasted so much time trying to figure out elementary business things, to be honest.

Nathan: There you guys have it from Artem. He would have found an entrepreneurial mentor earlier. Back in 2015, he spun Serptat out of his very successful agency, Netpeak, which does between $10 million and $15 million in annual revenue. Serpstat is now a SaaS tool, 52 employees working on it.

They've passed 1000 customers, raised $250 grand for 15% of the company back in 2016. Again, today, they've just passed $70 grand a monthly recurring revenue, which is tripled from the same period last time. Three percent gross logo churn each month, $20 CAC on a $70 monthly ARPU, so the payback period's very quick. Based out there in Ukraine. Artem, thank you for taking us to the top.

Artem: Thank you, Nathan.