Hotjar Revenue & Valuation (2020)

this is the top where I interview entrepreneurs who are number one or number two in their industry in terms of Revenue or customer base you'll learn how much revenue they're making what their marketing funnel looks like and how many customers they have I'm now at $20,000 per talk 5 and6 million he is help bent on global domination we just broke our 100,000 unit sold Mark and I'm your host Nathan Latka okay top tribe this week's win of the $100 is Zach Thon he's a 22-year-old Apple employee and he's listening to the show and loving it for your chance to win 100 bucks every Monday simply subscribe to the podcast on iTunes now and then text the word Nathan to 33444 to prove that you did it to enter all right guys I talked about this earlier but I schedule like so many meetings it would blow your mind I mean all my podcast interviews right hundreds of bunch mors I talk to monthly I schedule and you know what I do it so efficiently I get them all to agree to my calendar so all the calls are 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Revenue the founding story is very interesting the two co-founders found each other on a Reddit thread now they're serving over 1100 customers good morning everybody Nathan lka here our guest today is David Daran and he is the CEO and founder of hot jar over the 12 years before founding hotar he generated hundreds of millions of dollars in growth Consulting small to Fortune 500 businesses he's built multiple teams develop Brands and run hundreds of tests for his clients spanning across 19 languages 12 currencies and 13 different Industries hotar is now used on over 150,000 sites around the world and the company has grown to 3 million euros in ARR in under just one year we're going to dive into all of it David are you ready to take us to the top yes I am and thanks for having me you bet thanks for coming on all right this will be a lot of fun so tell us first for those not familiar what does hot J do and how do you generate Revenue sure so hot jar is a tool um that allows site owners site managers right so designers marketers um to pretty much see exactly how their users are using their site right so what does their experience look like so it takes the form of a heat map of how people interact with a page or replay their recordings or ask them questions so it gives you that knowledge and the way we see it is once you know how they're actually using your site then you kind of really know what to change what to improve next right so that's that's what haar does really well I have never in my life David felt more like a Russian spy than I did when I installed hot jar on my new company the top inbox.com I'm like swatching these you guys can see how I do this in screenshots at Nathan la.com hotjar but David I installed it and I'm going there's no way he's actually going to give me a video of a user on my website and show me where they click and where they SC scoll and sure enough that's exactly what I get it's amazing yeah and in fact like from a privacy aspect point of view um it's not really a video right so we're kind of recreating the HTML of what's being done and in fact we're super careful to avoid any like sensitive data or stuff that's shown but it is spooky right because it's we we like to use the word empathy it's like it's the perfect way to get into the shoes of your users and see what they're experiencing look my options are use hot jar right or and do and record these automatically or set up a, 101 Skype calls with every yeah potential person who visits my site which you can't contact them it's hard to find them and it's hard to schedule and it's hard to show up and so I mean it's it's great that's one of the reasons I want to have you on so now that people know kind of what hot jar does what's your business model how do you make money so we well a little bit of background on this right just to give the context um so in the past when when I was starting off in my career and I was still very early on in learning there was a lot of this technology already available right so it's not like we created this stuff but it was incredibly expensive and was not accessible so you had to do demos and you'd need to be qualified by an Enterprise sales team and all that stuff so what we wanted to do is we wanted to eliminate that right disrupt that aspect and make this accessible and available to anyone even if you're a student or an early stage startup or make it suitable even if you're a big business so what we did what we've done is we've done a premium model so premium means there is a free package uh which has some data limitations but it's sample so you still get juicy insights and then you can scale up your data collection rate that's kind of the premium side of it yep that makes sense so what is the average customer kind of paying you per month on average um so on average the number is going up and we are so I'm going to say Euros right sure that's fine yeah so we're we're just shy of the 50 range so it's it's it's relatively low we are a volume company but that's typical when you do premium um but if we do well we expect that number to constantly go up so when we started was it was in the 30 EUR range yep so about 50 about 50 or about 52 us um people start using you as they get more Addicted to You their usage goes up their addictiveness goes up and they pay you more for more data and more features that's correct that's great and give us a sense of kind of scale how many custom are you currently serving so we are serving just over 10,000 customers um and yeah you mentioned how many sites it's around 180,000 now running hard dve got it so what each each C that's that seems like a lot each customer has on average 18 sites well no because since it's a premium model um of the 180,000 um so if we have 10,000 customers 17 ,000 would be either free users or not using anymore got it okay inactive yeah that's the freemium model right you have a lot of people are coming and going um it's it's very consumer oriented so I would argue you're I'd argue you're beating by the way most consumer startups I mean you have about what a 10% free to paid rate versus most get like a three or 4% right yeah and it's typical to see when you apply the consumer model to the B2B it is typically higher actually yeah okay got it so and then is the math simple can I just take you mentioned you had3 million EUR in AR that was that last year in 2016 yes we're pretty much double that now yeah I was about to say so if I take 10,000 customers times a $52 arpo is it fair to say you're doing about 500 Grand in monthly occurring Revenue that is correct okay great so um so again three million last year um what what do you think you'll do I mean obviously it's the beginning of the year what do you think you'll do 20 uh 2017 what's your go that's a good question that's a good goal that's a good question Yeah we actually just had our leaders Le leadership session um earlier this month so we're looking to to to more than double hopefully that's great double the monthly uring Revenue yes that's great and what tell me more about the team so how how big is the team size today and what's your executive team look like so we're quite a small team right so we're definitely on staffed for what we're doing so we're roughly around 22 people now um and the leadership team we're eight great okay and how did you pick that I mean that's an interesting concept why is a leadership team important for hot jar and how do you think about who's in that and who's not that's a good question so we we were quite a big founding team so we're five people so we are yeah we're automatically in the leadership ourselves right and in a way it was I'm so happy that we were five people because it kind of feels like the more complex the the the product the more complex the business the the better it is to kind of be a bigger team I I tried to do onean show before or we were two people at a certain stage as well and other projects and I much more prefer being five obviously the advantage is that we had all work together so there are less risks of kind of having issues between the five of us yeah um but yeah essentially what we're trying to do is that we we've kind of identified four big pillars um so there's product there's marketing customer success and operations and we want every pillar to be representative represented in the leadership team right say those pillars again so you've got marketing You' got customer success then you have product and operations um and we give a lot of importance to operations it's it's own pillar because building a business has a lot to do with with the whole process piece right it's building that engine um not just doing the actual work but the engine that supports the work yep makes perfect sense okay good so that's your leadership team we got a sense of size um talk to me some about about some of the other unit economics what is gross customer turn monthly oh that's a good good question um so we don't actually reveal those numbers that much um purely because they they change based on let's say the type of plans we have so the fremium has a big impact so we don't typically reveal that much but I will say that a gross customer churn is actually quite high but then our net churn is relatively low um however not surprisingly churn is obviously one of our challenges right just as in most SAS businesses that position themselves towards let's say the the lower end non-enterprise that is that is typically the biggest challenge yep makes good sense and the reason just to put some more color around the the the lower net negative churn uh listeners that's just because I think David correct me if I'm wrong you have upsell revenue from current customers which drives net negative turn down but gross customer turn can still stay high that is correct so um our our net turn that is like half our customer turn so essentially what's happening is we're dropping the smaller customers but we are retaining and expanding the bigger customers that's a smart way to do it yeah and that's kind of what what we would want with a premium model right so let's put just some kind of range on that if we can are they are those both less than 10% monthly yes yes they are yeah less than 5% or no you're you're going to come down to the range so so so let's say so let's say the customer turn is just slightly over five right so you you're getting a not bad though that's not horrible right okay no for the start considering we're kind of just two years old so you found it in 20 2014 yeah 2014 yeah okay got it good okay so that's good 2014 founded 22 team members doing half a million bucks in Revenue gross customer churn you're working on it's around 5% net uh net churn is somewhere closer to two 2.5% because you have a lot of upsells happening what's the number a lot of people approach the freemium model and they wonder what should I pay wall like what's the moment where I should tell people now you have to pay you've done some things with kind of number of video recordings or number of Impressions on the heat map how did you kind of come up with some of these numbers and are they working well yeah that's a really good question right and and my advice on this would be if you TR truly want to create a premium company and not just like a a trial model which is disguised as a premium you really need to think about how does that free package stand on its own two feet right as in it can't be just something super limited that just has to be upgraded then it's not really a premium it has to be something that your users can use um on its own so what we did was as you said we limited the number of reports that you can manage within the interface um and then essentially we allowed our users to delete them to make space for new ones so there is some kind of um let's say time and maintenance costs for them which they can eliminate by going premium yeah that was a really it was interesting when I saw that cuz I hit 100 recordings very quickly I'm going this is interesting if I really want to be a cheap ass I could just delete all these videos and get a 100 new ones but it's not worth my time to do that so maybe I should just go pay the money exactly yeah that's smart what is the average time do you imagine you track this from someone who signs up from a free plan to when they convert to a paid one that's a good question we funnily enough we don't track the average time instead we we track cohorts um so we see how that percentage goes up over time um cohorts based off what separation So based on when they sign up right so in the first month that someone signs up we see roughly a conversion of 2% and then over let's say six seven eight months it goes all the way up it fluctuates uh anywhere in the region of 8% 9% okay very cool let's keep let's just fill out the rest of these unit economics before we get more into your story um what are you willing to pay for customer what's your customer acquisition cost um that's a good question um I don't remember the exact economics around that that's typically our our marketers that do that but I know that we are being extremely conservative with it um because here's the thing right and this is obviously the fun part with with these economics which is attribution right attribution is always a problem so um we've developed a range which is we look at direct attributions So based on spend and what we get back and then that is our our our let's say our Lower Side and then on the higher end we look at grouping in all the organic we get and just attributing that to the paid as well right let's assume that that is all coming from paid as well and that is our higher end um and rather than setting a very let's say rigid um maximum or or budget for acquiring a customer we have kind of more of a range so this is kind of a little bit unorthodox but it's because again we are premium sometimes we are more liberal and moving on the higher end of that range purely because the premium aspect is is brand building for us right are we talking about like 10 bucks on the higher end or a 100 bucks or a thousand bucks no I think the range would be something in the range between maybe 35 to 70 okay got it roughly um but again this this the thing is there's like we have a whole document with the values vary by country it it gets quite complicated so so so so the thing is again another piece of advice is don't just have one number right because you can't have one number so there there sometimes you need to be able to take like go on the higher range because there is let's say some brand value in doing some type of campaigns and maybe in a territory or on a particular platform because your attribution models are showing that you can spend higher we we do spend higher right but then we do look at the aggregate results and make sure that we're we're not steering too high to the to the like the total uh High High Point high limit that we've set are you guys uh today your two years old are you bootstrapped or have you raised Capital we're bootstrapped oh great that's wonderful um any in I mean do you think you'd ever rais capital and if so how do you think about when we we've we've discussed this quite a lot um most of other players in the market have all well actually not most all of them have raised Capital we see that as an advantage so who are those players name one or two of them um so there's vwo virtu visual website Optimizer okay um and there is who else would I mention uh zaret recently hit the market um India based uh startup raised quite a lot actually um so we know that there's huge potential we've been approached by by VC firms we've received offers but we we like to think that it's an advantage for us to not take funding for now purely because it it removes any pressure for us to monetize that premium that Community model that we have right so um the more we can run with that for now we think that's an advantage um will we raise in the future I'd say the probability is more on the yes side yeah y That's good to okay good good good piece of information there um talk to me about acquisition where are you getting most of your free users from how are they learning about you um well a substantial amount of it is actually word of mouth so we we we get a lot of referrals and that's obviously one of the strengths of the business and it drastically impacts how much we can spend to acquire users right so that's the higher end of the range because when you factor in the organic so you paid to get user a and then they're bringing along B's and c and d with them that obviously means the cost acquired is being spread across for users right so that's the top of the range um but uh yeah funnily enough we we we only recently started doing more paid advertising so we are we are doing some some display and some search um and social social platforms as well if you just obviously you're still experimenting here but if you add up just the total paid direct paid spend you're doing per month what's the range what are you spending per month on some of those tests um I have no idea no no clue okay but you have a marketing team that leads that yeah because the way we do it is actually quite interesting so we instead of kind of having a budget model we have kind of an investment Target Model so what we do is we've decided this is the certain this is the margin that we're aiming for in the company and then the rest of of that is is attributed in terms of percentages to to to those pillars so marketing for example would have I'm inventing here 20% of Revenue attributed to them as a as a as a Target investment so then they can go out there and be aggressive and use that budget spend 20% of mrr exactly interesting so we've used this model again because we believe a lot in flexibility and freedom and giving our our teams uh the freedom to kind of have their own budgets and go out there and and spend and experiment okay top tribe as many of you know I sold hoo and Everyone is always ask me what my expenses were when I was building well a big expense was that I spent over 3 Grand per month on financial services to keep me out of trouble in terms of taxes you know my mom would always haror me Nathan you got to keep all your receipts and put them in a freaking box or something to make sure you don't get an audit or things like this I'm like Mom I'm a millennial you think I'm going to keep all these receipts I now use fresh books I use their mobile app to take a picture of receipts and it makes taxes a cinch additionally I don't have to hire a $3,000 per month person to manage all my finances it's like saving so much money and my mom's happy additionally I don't waste a bunch of time creating invoices I use their templates and I can avoid using word templates or Excel files I just use fresh books to quickly send out invoices and it works like a charm to get your free first month go to Nathan l.com freshbooks and enter the top in the how did You Hear About Us section again go to Nathan lanka.com freshbooks and enter the top in the how did You Hear About Us section [Music] that's great makes a lot of sense David let's jump into the famous five these are these are like cake compared to my other questions you ready let's go number one what's your favorite Business book uh the 22 immutable laws of marketing number two is there a CEO you're following or studying right now I've actually reached out to Ram fishkin because X CEO right so kind of qualif if I but he's the wizard of Moz so that's fine um I've always admired him a lot so um reached out to speak to him actually so excited to be speaking to him um and I'm trying to remember the name of the president of atlan um J Simmons I think um yeah he's he's definitely someone I truly admire as well number three besides your own is our favorite online tool you have like acity scheduling um let's think favorite online tool I would have to say into come number three or number four yes no do you get eight hours of sleep every night no and you tell me this before the show but what's your situation married single do you have kids married two kids one six months one two years old wow and how old are you I am 35 all right so last question David take us back 15 glorious years what do you wish you're 20-year-old self new oo that's a good one I wish I truly understand I I wish I truly understood what marketing really was awesome do you want what do you mean by that well actually um I wrote a blog post about this recently which is marketing is is not about selling a product it's it's it's really the the art of understanding the market size the market opportunity and then how to position yourself to that market so it took me I think it took me way too long to fully grasp that top tribe there you have it from David deranian CE one of the founders of hot jar they launched over two years ago they did 3 million in uh in Revenue last year 2016 ontract to double that this year currently serving 10,000 paying customers paying on average 52 bucks a month for 520 Grand in monthly occurring Revenue gross churn around 5% net turnaround half that CAC they're willing to spend somewhere between 35 and 70 bucks per new user but they remain flexible on that they've got a team of again 22 people focused on helping people understand what their website visitors are doing and why David thank you for taking us to the top it's been a pleasure and thanks for having me if you enjoyed David today go back and listen to Ramy yesterday they found it a pointl and it just passed 35 Grand in monthly recurring Revenue the founding story is very interesting the two co-founders found each other on a Reddit thread now they're serving over 1,00 customers top dbe I love giving away free money I feel like o we're giving away cars and I have something special for you today how 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