How Moz Reached Nearly $60M in 2018 Revenue and 34,000 Customers with 6 Quota-Carrying Reps (Interview with CEO Sarah Bird)

Introduction and What Moz Does

Nathan Latka

00:00Hello, everyone. My guest today is Sarah Bird. She serves as the CEO of Moz, the most trusted authority in online search with powerful SEO and local search platforms that improve the position of your brand locations and competitive rank in search results. Before Moz, Sarah practiced law and traveled the world. She regularly speaks about entrepreneurship, business models, search marketing, women in tech, and fostering an inspiring company culture. Sarah, you ready to take us to the top?

Sarah Bird

00:21Yes. Let's do it.

Nathan Latka

00:22Alright. So for people that are not familiar with Moz, help us understand what you guys do. Then are you guys still pure play SaaS?

Sarah Bird

00:29Yes, sir.

Nathan Latka

00:30That's great.

Sarah Bird

00:30We are.

Nathan Latka

00:31And tell us what you do just a high level in case folks don't know.

Sarah Bird

00:34Absolutely. Moz is an all in one SEO platform. We help you win at organic search.

Customer Cohorts and Pricing

Nathan Latka

00:41There you go. All right. Now customers, and they're paying for this. I know you have a lot of different cohorts, but on average, what are they paying per month to use the tech?

Sarah Bird

00:47Yeah. You know, we do have a lot of different cohorts. We have over 34,000 different customers. So we could go into a lot of micro segments, but we won't today. 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.

Nathan Latka

01:15Okay. And can you can you just... Because there's a lot of things that go into lifetime. Right? For example, if your churn's really low, lifetime could be a hundred years or it could be one year turns really high, right? Can you help us understand what that means on a monthly level? So an SMB is gonna pay what, $10, $20 bucks a month on average?

LTV to CAC Ratio and CAC Payback

Sarah Bird

01:28Yeah, no, an SMB is gonna spend about $140 a month on average. That what's really important about that SMB side of the base at Moz is that we have a very organic funnel. We practice what we preach, which means we get all kinds of people coming to our funnel. The good news is we don't pay a lot of money for those folks. Right? Our customer... Our cost of customer acquisition is so low that we have a

01:545.5 times LTV to CAC ratio on that SMB side of the business, and we get full payback, including COGS, in month three.

Nathan Latka

02:04Okay. So so basically, a 5.5 LTV CAC ratio of if if LTV is 1,600, it would mean CAC is about two ninety on a $140 a month. Two to three month payback period.

Sarah Bird

02:14Yeah. So it's a very, very profitable side of the business, but it's a very noisy side of the business.

Churn Curve and Retention Dynamics

Nathan Latka

02:20What do you mean by So it's interesting.

Sarah Bird

02:21And what I mean by that is we have a lot of customers who come into Moz. And for example, a lot of business owners who think I'm going to do my SEO this month, and they don't understand it as a as a job, as a professional marketer's job that needs ongoing care and support, and that actually blends art and science. You really have to be quite technical and have the ability to make changes to your website.

02:43Yeah. 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. The good news is we haven't actually paid... Haven't paid any money for those folks. Right? They've found us. So what's interesting is the churn curve on those first, like, three, four, or five months is really, really high. A lot of people churn

03:04out.

Nathan Latka

03:05But What is that? Like, 80%, 40%?

Sarah Bird

03:07Yeah. It's closer to that 80%. Right? But... And it and it's it's... It drops off quickly each month. Right? Month one is real bad, and then month two months

Nathan Latka

03:07Then it should flatten.

03:16Right?

Sarah Bird

03:16Yes. And then it goes to a beautiful long tail so much so that when you get past month nine, we have an annualized churn rate of less than 5%.

Nathan Latka

03:27Yeah. So this is for the first... Love that you break it down this way because a lot of people just look at churn like it's equal every month and it's actually just not. It really isn't. Right? Like if you No.

Sarah Bird

03:35That's in our funnel.

Nathan Latka

03:36Right? Yeah.

Sarah Bird

03:36No. Most SaaS companies qualify their customers or they're buying customers that are already qualified. And because we're not buying the customers and there... You don't talk to a single human being. Right? You just sign up because put your credit card in. For Moz that means we have more unqualified customers than I think the typical SaaS company. And a lot of people say, sure you've got to fix that. You got to like, wow, that's a big problem.

03:59And to which I remind folks, 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, right?

Nathan Latka

04:11Or if you're relying on a big valuation because you have to do the next round and not have to be a down round and need healthy SaaS economics, right?

Revenue and EBITDA Figures

Sarah Bird

04:17Exactly, but we're EBITDA positive, right? We're EBITDA positive, we're cashflow positive.

Nathan Latka

04:23So how much last year were those numbers?

Sarah Bird

04:26How much last year were those, were the, was cashflow or?

Nathan Latka

04:30Yeah, either one.

Sarah Bird

04:31Well, so last year...

Nathan Latka

04:32Why don't we focus on this year? Is that all right?

Sarah Bird

04:36Sure. Yeah. So this year we're about 60,000,000 in revenue. Last year, were just shy of 60,000,000 revenue, I should say. And this year we're going to be north of there, probably like 15%. And our EBITDA is gonna be closer to 15% too.

Nathan Latka

04:53Okay. That's EBITDA of 15% you said?

Sarah Bird

04:57Of revenue.

Nathan Latka

04:58Okay. Got it. So 60,000,000 in terms of run rate. So December basically of 2018, you're saying you ended at a 60,000,000 run rate or right about there and you plan to grow to about 70,000,000 run rate by the end of this year. About 10,000,000 in new ARR bookings this year.

Sarah Bird

05:10Yeah. That's that's the goal.

Team Size and Sales Headcount

Nathan Latka

05:12That's great. Okay. So so help me understand how you break down these two very different cohorts. So people find you... I wanna understand how your sales team's operating. So what you... Start with your total team size. How many people on the team today?

Sarah Bird

05:24We are about 180 people.

Nathan Latka

05:26Okay. And how many of those folks are quota carrying?

Sarah Bird

05:29Oh my gosh. Do you know? Six.

Nathan Latka

05:32Okay. Six are quota carrying. No, that's good. So how do you model out? There's a lot of people that have this kind of these two separate cohorts and they always wonder, if we have salespeople and they're harvesting from these kind of closer to free tiers called $140 a month, right? What do we put out in terms of their quota versus their total pay? So some, a lot of people will say five to six to seven X,

05:53some push it as high as 10 X in terms of, again, total sales comp relative to the ARR target, right? The new bookings target for the rep. What do you put your ratio at?

Sarah Bird

06:01Yeah. So we are targeting at 5X. And just to be really clear, right? Like we, the self-service side of the business is so different than what we often use the word enterprise internally, but really it's mid market for I think how most SaaS companies would think about it. So if you hear me use the word enterprise, it's really mid market by how most people would think about it. Right. But we treat those very, very differently. And

06:26we're relatively new to the direct sales channel, I would say maybe in the last three or four years. We acquired a company last year that is all direct sales. That company is called STAT. So that part of the company, that channel is run very differently and the economics look very different. Right?

Enterprise vs SMB Cohort Breakdown

Nathan Latka

06:43Yep. Can you break down the the... So 34,000 total unique customers. How many do you put in your enterprise cohort versus your SMB cohort?

Sarah Bird

06:51The enterprise customer cohort is about 600 of that total.

Nathan Latka

06:54Okay. Yeah. Interesting. So you definitely see kinda eighty twenty rule.

Sarah Bird

06:58Yeah. Absolutely.

Nathan Latka

06:59Yep.

06:59That's great.

Sarah Bird

06:59And they're about 30% of the revenue.

Nathan Latka

07:02Yeah. Oh, okay. Good. Okay. Not as much as I would have thought. That's good. Nice distribution. So Yeah. 34,000 customers total, again, doing about

Sarah Bird

07:09And just to put a fine point on that, right? That is one of the reasons Moz is so profitable. It's because the self serve side of the business is very profitable. And then we can use that cash to cover the cost of acquisition. So other startups and they're growing their enterprise business, their direct sales channel, they need to take outside funding to cover the cost of customer acquisition as they're building up the business. And we use

07:30the 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.

Total Funding Raised and Last Round

Nathan Latka

07:40Yeah, how much have you raised to date?

Sarah Bird

07:42About 30,000,000.

Nathan Latka

07:44So you guys, but you haven't, when was the last raise? What year?

Sarah Bird

07:48Oh gosh, what year was our last raise? 2016, think, 2015.

Nathan Latka

07:54Yeah. So you guys, it's harder for you to pull, like I'll call it pull a Wistia because they'd only raised less. They could use debt to buy out the investors. If you guys try to use it to buy out investors, you'd have to, I don't know, probably raise like 90,000,000. They want a three X minimum. I mean, have you considered that? Is it something doable or no?

Sarah Bird

08:11No, we have not considered that at this time. We're not really focused on that.

Nathan Latka

08:15There's no pressure from those early investors to get liquidity?

Sarah Bird

08:19No, I wouldn't say pressure to get liquidity. I mean, business is healthy. The business is stable. I mean, it's also a great time in market. So I will say it's a conversation we're always having. And in fact, we have a lot of conversations ongoing from people who are interested in the business and interested in this kind of business. I think as attention grows for SEO and as attention grows for the SMB side

08:45of the market, you know, Moz is on a lot of people's minds. So I wouldn't say there's pressure, but if there's always a, Hey, is this a good time? Is now a good time?

Nathan Latka

08:52Yeah, yeah, yeah. Mean, well, you have put yourself in a range where you, now you don't just have strategic buyers' options, but you definitely have the PE folks' attention as well. If you're taking 15% of 70,000,000 to the bottom line or about 10,000,000 a year or about, what is that about $800,000 a month free cash flow?

Sarah Bird

09:05Yeah. Right. Mean, there's variability in there, but yes.

Nathan Latka

09:09Yeah, yeah, of course.

First-Week Retention and Cross-Product Expansion

Nathan Latka

09:10And okay, good. So 180 folks now, how do you think about, I wanna talk about the retention curves you talked about earlier. How do... I mean, if you add three percentage points before that curve turns flat, that's significant in terms of future cash flow. It's huge. Yeah. So so you spent... Hope probably spent a lot of time on this. What do know you have to get a new $140 a month user to

09:31do in the first week to drastically increase the likelihood they stick?

Sarah Bird

09:36Yeah, absolutely. You know, first of all, there's a big increase if they set up a campaign, what we call it a campaign, which is you have a website that you're tracking over time. So Moz has a series of use cases. Sometimes you're in there, you're just doing research for a quick project, and sometimes you're tracking a campaign over time. We find if you're tracking over time, you're more likely to stay. And so we spend a lot

09:58of time getting people to say, hey, don't forget to set up a campaign. You want to look at this website and how it's changing and how the competition is changing. We don't want to have to rely on the user to come back and remember to run an independent one off report.

Nathan Latka

10:12Sarah, are these like lifecycle emails though or in product notifications? You can't afford to put touch on a $140 a month.

Sarah Bird

10:18No. Although... So yes, we have in product notifications. We use Intercom. We also have emails. We use HubSpot for various other kinds of life cycle emails. And also, we offer one on one walk throughs to any customer that wants it. And 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. So

10:49it's not like we don't try to touch customers, right? If customers want help, we are there for you. But we do find that people who tend not to ask are also tend to people who are less invested.

Nathan Latka

11:00Yep. Yep. When you look at, so we can ignore the two cohorts with this question, I think, when you look at revenue churn, right, across the base over the past twelve months, what was gross revenue churn? And then the second question is, did expansion more than make up for that?

Sarah Bird

11:14So we don't have a lot of expansion dynamics like other businesses. People tend to come into that sort of middle tier pricing where the free trial is. They tend to stay there. That is not true for the sub segment of our customers that are agency customers. We find that agencies will grow with us over time and more than just grow within one product line. They might come in at our flagship product called Moz Pro at that

11:42$149 price point, and they might stay there for a year or two as their agency doesn't grow that quickly, but they'll buy more products from Moz, right? So the expansion dynamic we see is more cross product than within products. Buy a stat from us, they'll buy our local product from us.

Nathan Latka

11:58Sarah, I consider that expansion revenue. I mean, you're getting more wallet share just instead of upselling seats, you're upselling product.

Sarah Bird

12:04Yeah, it's true. It's true. I'm just, I'm trying to make the distinction between the different kinds of end product dynamics that we would have because the motion is different across the org.

Nathan Latka

12:13Yeah. So what would the actual figures there be over the past twelve months? What was gross churn?

Sarah Bird

12:17Yeah, I don't have the actual numbers off the top of my head for that.

Nathan Latka

12:20Do you know if net you're above a 100%?

Sarah Bird

12:24In certain segments, absolutely 100%. Other segments, absolutely not. So there's a lot of variability in there, and it also varies by product. So it's hard to say across the board. For example, in STAT, yes, absolutely. Most of our growth in the business is from expansion revenue. So I'm being cagey, but not on purpose.

Qualified vs Unqualified Customer Segments

Nathan Latka

12:42Right? Yeah. Mean, I'll tell you the reason I'm pushing,

12:46the reason I'm asking about it really is because, I mean, you told me $1,600 lifetime value on that $140 a month cohort earlier, which implies an eleven month basically life, which is I mean, essentially 9% monthly churn, right, which is really, really high. But to your point, because your CAC is so efficient, it's fine. But now, the problem with that is, again, I'm going to speculate on is pure speculation here. If you're having conversations, whether it's

13:11going public or you want to buy companies and you're trying to get the company to take some of your equity instead of having to put out cash or you are trying to sell to private equity firm. These kinds of economics will essentially ding your valuation or the value, in my opinion, the value of the stock. I'm just curious how you talk around that. And by the way, that sounds bad, but I'm curious how you position around

13:29that.

Sarah Bird

13:29Yeah,

13:30yeah, yeah. So I gave you the gross number and as I headlined at that time, right? There are many, many micro segments within that. And so we don't consider that full base, all of them qualified. When talking to an investor explaining to our business or why you should be in a debt or when we're acquiring people, we do these more micro segmented approach and we focus on, hey, if you take out this unqualified customer segment, right,

13:55this whole segment of people who are paying us and we make money from them, and you only look at the qualified customer segment, 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. This is on like an aggregate cohort basis. So what that looks like is our revenue is incredibly stable and growing, right? That

14:24we have this beautiful, beautiful long tail that we have qualified customers have a tenure of up to ten years and an average churn rate of less than 5%.

Nathan Latka

14:35Annually or monthly?

Sarah Bird

14:37Yeah, annually. Annually, right? So that is the kind of churn rate that is enviable of an enterprise company, let alone an SMB company.

Nathan Latka

14:46If I was role playing though with you right now, let's say I'm a big mean private equity firm. Sarah, you're exactly right. We love that you're segmenting this way. So, basically, what you're telling me is two thirds of your revenue is real revenue. The rest is kind of fluffy revenue you don't actually deserve because they're not activated customers. So, really, you're not a $70,000,000 a year company. You're actually a $50,000,000 AR company. So we'll pay them

15:03all at $1.50, not 70.

Sarah Bird

15:04Yeah. You could. And you could also say, hey, those customers are paying me to qualify. All your other businesses, you are paying to go qualify those customers. The 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, right? That mid market enterprise customer segment. So again, I

15:32think it does require investor who looks at this very holistically as a, wow, I could go leave that money on the table like other businesses do. They do. Other businesses leave that money on the table because they aren't as efficient as acquiring customers as we are. Or I can say, Hey, that's great. They're leaving and they're not leaving with a bad experience. Most of them leave with a positive experience and just say, Hey, I'm not going

15:54to get enough value out of this because I'm a business owner. I need to go hire an agency. And then we get enough value to go and grow the business in these other segments that are more stable.

IPO Prospects and Capital Allocation Philosophy

Nathan Latka

16:05Yeah. Is the company growing too slowly to truly consider a blockbuster, like an IPO that would be effective for everyone or is kind of IPO off the table?

Sarah Bird

16:11Yeah.

16:12Yeah. It's a good question. I mean, I don't think IPO is a likely outcome with the growth rates we're seeing right now in the market. I think that you're right, a

16:23financial model that prioritizes cash flow, I think, is a better fit for us. And that certainly plays to the strength of our business model. There are many different ways to grow a company, right? And I don't have a judgment about it. Like a lot of these companies that are IPO ing, like they are losing so much money, spend so much money, right? And it's hard to see when are they ever going to start making enough money

16:46to justify those valuations.

Nathan Latka

16:48By the way, love that you make money, right? Think it's a great thing.

Sarah Bird

16:51Right. And it's fine that there are markets out there and there are companies that are growing that way. This is not about judgment for them. And also there are other kinds of ways to grow a business, right? And ours is much more focused on fundamentals and cash and stable growth and creating what I consider to be a real business whose per customer economics are fantastic, right?

Nathan Latka

17:13Yeah. Are you in acquisition talks right now with Vista Equity?

Sarah Bird

17:13No.

Nathan Latka

17:13No, do you like those guys?

Sarah Bird

17:22I don't really know them personally well enough to say, they seem fine, right? They seem fine.

Nathan Latka

17:28Very good. Last question on expenses. You put out an annual report with all of your character, which I loved wrapping out 2017, which by the way, didn't do for 2018. When's that coming?

Sarah Bird

17:37It didn't do for 2018. You know what? It just ended up being not that important to me to do, but I appreciate there are some people who enjoy it. Right? You're the only the second

Nathan Latka

17:46It's great.

Sarah Bird

17:47Person who has said that they missed it. But it's two people enough. It's enough people tweet at me to say that they really, really miss. It's been two. It's been you and one of our competitors.

Nathan Latka

17:59That's funny.

Sarah Bird

17:59But with that kind of demand, I I... Doesn't... I got a lot going on in my life and running the company. It's like, okay. This is not the most important work for me to do right now.

Data Partnerships and Third-Party Data Costs

Nathan Latka

18:08Let me wrap up with one question here. This industry, kind of SEO in general, can be very

18:14incestual in terms of who's providing true original sources of data versus who you're buying data from to bulk yours up. In 2017, spent about 3,500,000 on third party kind of data providers. Where, you know, is that still about the same in 2018 in this year? If so, what kind of data are you paying for to make your

Sarah Bird

18:14It's

Nathan Latka

18:14book more

Sarah Bird

18:31a good question. So there are data that we

18:37acquire, some of the data that we acquire is part of why my EBITDA is higher this year, right? My EBITDA has grown this year because we are so much better at acquiring data more efficiently.

Nathan Latka

18:47Like cheaper? Excuse me.

Sarah Bird

18:48And there are other parts of my business line where the cost is going to grow proportionally to revenue growth. So on total, I'm going to be spending less money on data and data acquisition, but there are lots of segments within there.

Nathan Latka

19:02Yeah. Well, like, I'm just curious though, what it actually, like what that data actually is. Who are you buying from? Like, what are some of the companies you pay to get data

Sarah Bird

19:02I'm

19:09not going to name every single company.

Nathan Latka

19:11No, no, they have all of them. Just put a face to them though, like name one.

Sarah Bird

19:14Yeah. For example, we buy, we have data partnership with data aggregators like Acxiom and InfoGroup and Factual, and they are part of this distribution system of getting your data out there. And we've recently partnered with a new platform called Uberall. And so we're spending money there as well. Yeah.

Famous Five Rapid Fire Questions

Nathan Latka

19:36That's helpful. No, that's helpful. All right, you've got a conference to wrap up. So I'm going to wrap up here with the famous five. Number one, what's your favorite business book?

Sarah Bird

19:44Oh my gosh. I was just thinking about Yeah. Radical Radical Candor is a really good one. You have to come back to time and time again.

Nathan Latka

19:53Number two, is there a CEO you're following or studying?

Sarah Bird

19:57Oh, wow.

20:00You know, there are a lot of leaders I'm following. I was just listening to Jerry Colonna again today on one of his podcasts. I think he's

Nathan Latka

20:10Which company is he working?

Sarah Bird

20:11Magical and thoughtful. He's doing, like, the reboot work. But so he's he's... You know, he's not a tech... You're looking for more of a tech

Nathan Latka

20:11No.

20:18No. No. Any CEO you're studying.

Sarah Bird

20:21Yeah. Jerry Colonna, Oprah Winfrey. Yeah. I love her.

Nathan Latka

20:25Number three, what's your favorite besides your own? What's your favorite online tool for building at Moz?

Sarah Bird

20:30Oh, wow. You know what? We are big fans of... We're big fans of HubSpot because I think email still works. Email still works. It's great.

Nathan Latka

20:42Number four. How many hours of sleep do get every night?

Sarah Bird

20:48Six, seven.

Nathan Latka

20:49Seven. Okay. That's good. And can I ask you how old you are?

Sarah Bird

20:51Yeah. I'm 40 years old.

Nathan Latka

20:53I love that. 40 years 40 Yeah. Years Alright. And what's your situation? Married, single, kids?

Sarah Bird

20:59Single and a kid.

Nathan Latka

21:00Oh, good. Okay, last question. What do you wish your 20 year old self knew?

Sarah Bird

21:05Oh, what do I wish my 20 year old self knew?

21:11Yeah, think that to really trust the journey, to trust the journey. My 20 year old self would never have guessed what's happening in my life now, would never have thought it was possible for her. And I think would have had... And had some sense of like, Hey, where am I going? What am I gonna do with this? And I wanna tell myself to trust the journey. I think that's what I tell my 40 year old self

21:30too. Right? I think that's timeless advice.

Nathan Latka

21:32Trust the... Moz.com almost hit $60,000,000 in terms of run rate in 2018. We'll hit 70,000,000 this year. The nice thing about that EBITDA is improving 15% EBITDA margin. So call it 10,000,000 free cash flow to bottom line, 30,000,000 raised last round in 2015. Again, they got a sustainable business, a team of 180 people as they look to continue to scale and grow, helping people do a much better job at their SEO work so they can grow their companies.

21:53Sarah, thank you so much for taking us to the top.

Sarah Bird

21:56Thank you so much. Have a great rest of your day.