How Phorest Reached 5,000 Salon Customers with 6% Annual Churn and 53% SaaS Growth (Interview with CEO Ronan Perceval)

Introduction and Background

Nathan Latka

00:00Hello, everyone. My guest today is Ronan Perceval. He's the cofounder of Demonware, which is a matchmaking service used in Call of Duty that was acquired in 2007. He then founded Phorest on Evergreen Principles, which are building a company to last for generations. Over 70 of the 150 employees are ordinary shareholders, not options. Phorest is now serving over 5,000 salons and is a leading salon software company in Europe. Ronan, are you ready to take us to the

00:24top?

From Demonware to Salons

Nathan Latka

00:26Yeah. And So you go from a matchmaking service used in Call of Duty to salons. How the hell does that happen?

Ronan Perceval

00:36>> Yeah. Good question. We actually didn't initially plan on getting into salons, but I ended up getting a job in a salon as someone working the front desk just as a part time job while I was in between gigs. And that's how I got interested in the industry. So it was something very unexpected.

Nathan Latka

00:57That's pretty funny. Okay. So tell us what the company does for salons.

What Phorest Does for Salons

Ronan Perceval

01:01>> So we're booking POS SaaS platform for salons. So we do all their, you know, everything that they do in the salon from booking appointments, managing their client records, managing their stock control, doing their staff reporting, payroll. Basically any admin task that the salon does, we try to automate in some way through the system, freeing up their time and giving them more time to work with their clients.

Revenue Mix: SaaS vs Transactional

Nathan Latka

01:26You mentioned transactions and SaaS. True or false? Your main revenue stream is SaaS and then you take some very small cut up to transactions?

Ronan Perceval

01:35>> I would say about 65% is SaaS, 35% is transactional in some way.

Nathan Latka

01:42Oh, wow. Okay. That's actually that's actually pretty high. So let me just let me just ask about the SaaS side of things for a second. So if we have salon owners listening right now, the average salon owner that's paying you, what are they gonna pay you per month just on the just to use the software, not the transaction fees?

Ronan Perceval

01:57>> Just to use the software, anywhere from $100 a month to $200 a month.

Nathan Latka

02:02Got it. And so

02:03you're very much oh, that's annual? Monthly. Oh, monthly. Okay. But you're still very much in the SMB space then, Yeah.

Ronan Perceval

02:12>> We're 95% of salons are independent operators, So they're like one location.

Churn Rate and Why It Stays Low

Nathan Latka

02:18So let me ask you a question. They go out of business a lot, which means churn on your end can be frustrating at times. What's your churn rate today and how do you keep it low?

Ronan Perceval

02:26>> So we've pretty good churn rate for this industry of 6% logo churn per annum.

Nathan Latka

02:32Per year?

Ronan Perceval

02:33>> Per year.

Nathan Latka

02:34Wow. That's extremely low for this this space. Why is it so low? What have you done?

Ronan Perceval

02:40>> Well, we provide a huge amount of value for salons and also we help them grow their business. 12% of salons go out of business every year, so that's the actual churn rate for the industry. And we're half that mainly because if you're using our product you're gonna be doing better than the competition generally. So they're more likely to stay in business. I'd say that's probably the main reasons.

Nathan Latka

03:02That's amazing. And how many salons have you scaled to today?

Ronan Perceval

03:06>> 5,000.

Nathan Latka

03:075,000. And those are not those are actual paid salons, not like free salons, free users?

Ronan Perceval

03:12>> Yeah. That's 5,000 paying customers.

Nathan Latka

03:14Do you implement a freemium model to get these customers? How do you how do you get so many?

Ronan Perceval

03:18>> No. We experimented with freemium, but it didn't work. We had a lot of free users and very little number of those converting to paid. So we moved to a paid only model for the last five years, and that's worked phenomenally well for us. It's better because the salons that sign up with us are serious about using the product and getting value from it, so they tend to be easier to onboard, if that makes sense, easier to

03:47>> get them using all the value of

Nathan Latka

03:49the because people pay attention to stuff they pay for.

Ronan Perceval

03:52>> Yeah, we're not the cheapest provider in the market. We're probably one of the more expensive for what we're doing. But that works well for us. So we tend to attract the sort of mid to high end independent salons. So a salon that would have like more than five people working there Yep. Is the minimum. Yeah.

Nathan Latka

04:09And what's your kind of top growth channel that's not a really obvious one? Like not Google Ads or Facebook Ads, but is there something you're doing kinda in the trenches that's really working nicely to find these kinds of salons?

Growth Channels and Content Strategy

Ronan Perceval

04:21>> Yeah. Well, like, just give you an example. Like in the last twelve months, we've probably onboarded 1,600 salons, something like that. And half of those come from content. So it come from our own content channels. So we'd have a quite a big podcast for salon owners, blog, events, things like that.

Nathan Latka

04:42Interesting.

Ronan Perceval

04:42>> So that's something that might be not expected.

Nathan Latka

04:45Which well, a lot of people say content marketing, which isn't valuable and actionable because that can mean so many things. Can you name a specific piece of content on your blog that has performed the best in terms of helping you onboard 1,600 new new salons?

Ronan Perceval

05:01>> Yeah. There's a couple of articles that are like evergreen that are always in the top two or three read articles, and they've been around for a couple of years. Uh-huh. I don't have it at hand, but I'll yeah. I can.

SEO and Keyword Rankings

Nathan Latka

05:13Do you know the search term off the top of your hand that you rank really high for?

Ronan Perceval

05:17>> Yeah. Yes, we rank number one for 700 different terms around salons. So things like,

05:25>> yeah, really quickly, top salon signs, I think is an example of one.

Nathan Latka

05:33Interesting.

05:35And how did you did you create all this with humans? Or did you do something kind of automated where you you knew what the top search terms were for salons, you then pumped out a bunch of these articles, like created from like a piece of code or is it all humans?

Ronan Perceval

05:51>> It's all humans. But it's using data. I mean like things like

05:57>> we're testing a lot of different content. So we probably put out a different piece of content every day. And so people were tracking how those picked up and things get a lot of traction that might develop into a much larger piece of content.

Nathan Latka

06:12I see.

Ronan Perceval

06:12>> We've an SEO team with particular bits of content to make sure or come back with feedback on search keywords that might might lead to a bit of content around that. Does that make sense?

Nathan Latka

06:27So you put out you put out kinda little acorns, and then if they show any sign of life, your SEO team will go in and then optimize, optimize, optimize, and you'll make it maybe longer, more keywords, more value.

Ronan Perceval

06:37>> Or even develop it into an e book, you know, etcetera etcetera. So, and then that e book might get to number one for something that gets a decent amount of search volume. I mean some of these terms, when we're saying 700 terms, some of those are you know, they might only have five people a week A month. Looking at Yeah. A month even. Yeah. Exactly.

Nathan Latka

06:58That's great. And so so let me understand your team breakdown. How many people are on the team today, and how many focused on content or events or things like that?

Team Size and Global Locations

Ronan Perceval

07:06>> So we've a 170 in the team. I would say we've got I think we've got about six full time on content. Wow. And then another another four you know, around that between SEO and data and and events and things like that that I kind of backed off some of that content.

Nathan Latka

07:28In terms of in terms of the blog, is that on top of WordPress?

Ronan Perceval

07:31>> Yes. The blog's on WordPress.

Nathan Latka

07:34Yeah. I see. And then one seventy, is everyone based in Dublin?

Ronan Perceval

07:37>> No. We've about a 110 in Dublin and the rest around the world. So we'd have 25 in The UK, about 12 in The US, and then the rest are just three or four in Germany and Australia, and then sporadically remote workers from wherever they want to be.

Nathan Latka

07:53Dublin and remote. And Ronan, put this on a timeline for me. When did you launch the company? What year?

Company Timeline and Bootstrapping

Ronan Perceval

07:58>> So we've had kind of a longest journey. We started in 2005 when I left Demonware.

Nathan Latka

08:07That was the salon you worked at?

Ronan Perceval

08:09>> Yeah, so I was working in the salon between 2004 and 2005. And

08:15>> we were bootstrapped pretty much all the way until 2011 when we did a seed round. So the company had about 15 people in 2011. And then it started to grow properly from around then I would say. You know, if that makes sense.

Nathan Latka

08:34How much raised to date?

Funding History and Susquehanna Growth Equity

Ronan Perceval

08:36>> So we raised a million in 2011, and then we didn't raise again until this year when we did 20,000,000.

Nathan Latka

08:44Oh, got it. That's so very patient and effective with capital. I like that. Why not so there's a couple of firms right now like Wistia and things that have raised like 1,000,000. They've gotten kind of good scale. And instead of going out and raising the 20,000,000 like you just did, they say, you know what? It's really nice to be in full control. And they go buy out the early investors. Did that ever cross your mind or

Ronan Perceval

09:04no?

09:04>> Yeah, absolutely. So one of the things, what we've done is we've, the majority of the company is still owned by myself and the employees. So we've kind of made a pledge to each other that we will always maintain full ownership and full control. Because sometimes you can own the majority of the shares but an investor will have rights in there and

09:27>> The ability to force a sale or something like that. You know, they're not used that often but they have that. So we don't have that in our agreement. So the firm that we took in this year, they're not actually a fund. It's Evergreen Capital as well, so there's no timeline on when they need a return.

Nathan Latka

09:43Who was the investor?

Ronan Perceval

09:45>> A company called Susquehanna Growth Equity. They're based in Oh, yeah. I

Nathan Latka

09:50mean, look, Growth Equity does have a timeline, but I would say they're so big, you're safe.

Ronan Perceval

09:54>> It's not a fund so they're not set up as a fund even though they're called Susquehanna Growth Equity. So they don't have any requirements on when they need a return.

Nathan Latka

10:08Who are their LPs?

Ronan Perceval

10:10>> It's their own money. So there's a company called Susquehanna, it's a software company, bootstrap software company, and they basically put half their profits into this. It's basically like a bank, I know it's more complex than this, it's a bank account. Yeah. Where they and then whenever an exit does come, it goes back into that bank account.

Nathan Latka

10:27That's great.

10:28Yeah. Well, they they share your DNA then. Right? Bootstrapped cut like, you guys are probably very similar.

Ronan Perceval

10:35>> Yeah. They've, like, they've 18 companies in their portfolio. They've invested in the last twenty years, and they're all would have started bootstrapped. That's all.

Nathan Latka

10:42That's great.

Ronan Perceval

10:43>> That's what they're investing in.

SaaS Revenue and Growth Rate

Nathan Latka

10:44That's great. And then in terms of I wanna talk more, by way, about how you've managed to structurally set up everyone kinda owning a piece of the company, but I wanna get back to that in a second. In of scale today, you know, 5,000 customers paying on average a $100 a month that puts it at about $500,000 a month. Is that accurate?

Ronan Perceval

10:58>> No. So you asked me for the SaaS piece.

11:01>> Yep.

Nathan Latka

11:02So Sorry. Sorry. Yeah. Sorry. Just SaaS $500,000 a month?

Ronan Perceval

11:06>> Yeah. A bit more. About 600.

Nathan Latka

11:08Okay. And then I can I can multiply that by basically 1.3 to get up to, you know, add the 35% transaction?

Ronan Perceval

11:16>> Yeah. Like, we we've just closed. Like, we're coming to the end of this year, we'll do about €13,000,000 this year.

Nathan Latka

11:21So that's That's great.

Ronan Perceval

11:23Yeah. That's great.

11:23>> Million dollars, $60,000,000, something like that.

Nathan Latka

11:26Yeah. Congrats. And you've got a a nice foundational base under that, which is that pure kinda SaaS revenue. What what did growth rate so if you're doing $600,000 I

Ronan Perceval

11:32>> don't know how much you know about SMB SaaS, but mostly SMB SaaS companies, they're 40 or 50% transactional. Like, so if you look at, like

Nathan Latka

11:42Well, run it. But just to be clear, like sorry. I don't mean to cut you off. I mean, so we've interviewed out 3,000 B2B SaaS CEO. So I see this pattern all the time, very rarely. I mean, you're in ten fifteen years now. So you have a transactional model, very rarely do I see someone in the SMB space less than five or six years old have a transactional component.

Ronan Perceval

12:01>> Yeah, yeah, so I'm talking about companies that are ten years plus. Yeah. Like the public SMB Infusionsoft. Yeah, like Shopify, MINDBODY, all these guys, they're all 40% to 50% transactional at this Totally. Yeah. I think it can be where transaction is so important to the real value is that small businesses don't want to sign up to big contracts, right? So you need to generate revenue through value, That's usually easier to do through transactional basis because they'll

12:32>> keep using it, but they know they can stop it at any time, but they won't as long as the value is still there.

Nathan Latka

12:36It's directly attributable.

Ronan Perceval

12:38>> Yeah, so whereas signing up to a three year contract or whatever, it appeals to a large enterprise but doesn't appeal to an SMB. If you really wanna, like the companies that have really nailed it in SMB, like even Intuit or whoever, there's always some sort of transactional revenue stream over 40% from what I know. But I agree with you when you're smaller and we would have been the same when we were smaller.

Nathan Latka

13:03Yeah. What year did you launch the transactional model?

Ronan Perceval

13:08>> Well, we actually have two so payments, which is the have a common transactional model, right? So we've only been doing payments for the last three years, but we actually have another transactional model. So we do quite a lot of revenue through SMS notifications, Yep. And we charge those transactionally. So that's we've been doing that for ten years.

Nathan Latka

13:27That's like a margin between what you have to pay the actual the the the the cell tower versus what you bill through per text to the salon Yeah. It's

Ronan Perceval

13:34>> 50% margin.

Nathan Latka

13:35That's good. Yeah. And real quick here because we're out of time growth rate. So if you're doing 600 or six fifty right now, just pure play SaaS today, what were you doing on that just SaaS about a year ago?

Ronan Perceval

13:45>> That's up 53%, I think, year on year.

Nathan Latka

13:47Oh, that's great. So so call That would have been, what, $420,000 last year, about a year ago. That's healthy growth.

Ronan Perceval

13:53>> Yeah. 400 something we're yeah. I think we were doing monthly for it. Yeah.

Cash Flow and Capital Deployment Plans

Nathan Latka

13:56That's wonderful. And then are you obviously, you just raised a ton of capital. I maybe it is sitting in the bank. Maybe it's not. Are you guys cash flow positive today?

Ronan Perceval

14:03>> Yeah, we've been cash flow positive for

Nathan Latka

14:05So no plans to use the capital. Just gonna sit in the bank and it's gonna look pretty.

Ronan Perceval

14:09>> No, I think we're gonna Well, a couple of things.

14:13>> Yeah, there's a few things that we're gonna do with it, but it's gonna allow us to expand a bit more in The US, take more risks, but we'll still try and do it cash neutral, if that makes sense. But we have buffer there in case it doesn't go right.

Customer Acquisition Cost and Payback Period

Nathan Latka

14:26And right it sounds like you're about to get more aggressive, but right now, how much are you gonna pay to acquire a new $120 a month customer?

Ronan Perceval

14:35>> On sales and marketing?

Nathan Latka

14:37Fully weighted, fully weighted.

Ronan Perceval

14:39>> Fully weighted, including onboarding costs and everything like that were $3,500 Okay.

Nathan Latka

14:45So you knew that pretty quickly. You're making basically a lifetime value calculation. What does that pay back? That

Ronan Perceval

14:51>> It's transactional in terms of the lifetime value because for us we've got a long time of lifetime value. Our transactional history that we were able to use and see with customers and things like that. Yeah, we're fifteen months.

Famous Five Rapid Fire

Nathan Latka

15:05Fifteen months. Look, that's pretty darn healthy. So very good. All right, let's wrap up running here with the famous five. Number one, what's your favorite business book?

Ronan Perceval

15:15>> Well, the old school one was Good to Great, which I'm sure everyone mentions, but my favorite for the last year or two has been good strategy, bad strategy.

Nathan Latka

15:24Number two, is there a CEO you're following or studying?

Ronan Perceval

15:28>> I love Shopify. So and from their CEO down, just like those guys are amazing.

Nathan Latka

15:35Yep. Number number three, what billing tool do you guys use?

Ronan Perceval

15:40>> Our own, but we're about to move to Zuora.

Nathan Latka

15:43Interesting. Okay. Number four, how many hours of sleep do get every night?

Ronan Perceval

15:48>> Well, I have three young kids. So unfortunately, only about six hours.

Nathan Latka

15:51Holy mackerel. Okay. So three kids married, I assume?

Ronan Perceval

15:55>> Yeah.

Nathan Latka

15:56And how old are you?

Ronan Perceval

15:57>> 39.

Nathan Latka

15:57Last question. What do wish your 20 year old self knew?

Ronan Perceval

16:04>> To yeah. Get started earlier, I think. Know? Like, we started I started this when I was about 26, and I probably should have started three years earlier.

Nathan Latka

16:11Guys, get started earlier. Phorest.com helping salon owners scale nicely in the SMB space currently serving over 5,000 customers doing about $600,000 per month in revenue. That's just their SaaS piece. They're doing call it $12,000,000 to $13,000,000 bucks in annual revenue when you add on their transactions and payments component. On top of that. That $600,000 per month is up from $420,000 per month just a year ago. So about 53% year over year growth. They tried freemium, didn't work, ended

16:35up doing moving to a paid model about four or five years ago. Again, now working nicely. 21,000,000 raised to date. All the employees are actual shareholders in the company, which I love. A 170 of them based all around the world, mainly though in Dublin. 6% annual logo churn healthy for a space that churns 12% per year just naturally. Again, spending about fifteen months of lifetime value on acquisition. Ronan, thanks for taking us to the top.

Ronan Perceval

16:57>> Yeah. Thank you, Nathan. Alright. Take care.