How Yotpo Grew to 4,000 Paying Customers and 95% Net Revenue Retention with Four Products (Interview with CEO Tomer Tagrin)

Introduction and Company Overview

Nathan Latka

00:00Hello, everybody. My guest today is Tomer Tagrin. He is the CEO and co founder of a company called Yotpo, the leading commerce marketing cloud for D2C brands. Having raised over a $100,000,000, Yotpo has a global team of three fifty and four thousand plus clients that include Glossier, Steve Madden, MVMT, Thinx and Away Travel. Tomer was a chip designer for Intel and graduated from Tel Aviv University. Alright. Tomer, are you ready to take us to the top?

Tomer Tagrin

00:24>> Yeah.

Nathan Latka

00:25Alright. All of you Israeli defense folks, you're always making hundreds of millions of dollars. So when do you hit a billion dollars in revenue?

Tomer Tagrin

00:32>> It's a good question. I would say a billion dollar probably when it's like six, seven, eight years, something like that. What Something like that.

Nathan Latka

00:41Very good. Alright. Let's jump into the business. So so what's the company doing? Are you pure play SaaS?

Vision: Direct-to-Consumer Marketing Stack

Tomer Tagrin

00:46>> Yeah. So we are pure play SaaS. And what we're trying to do is we think the shift of, Amazon created a world of a lot of direct to consumer brands, and everybody's going direct to consumer. We think the most important thing that they need to have is their experience or their marketing efforts, because nobody buys a Nike shoe because Nike is the most comfortable shoe in the world, right? Products are becoming commodity. And it's only about,

01:09>> like, how can you create an experience to bring consumers and get them buying again and again. For that, we're trying to build, like, an integrated marketing stack that's gonna give you everything that you need in order to build the best experience for your consumers.

Nathan Latka

01:21Yep. Okay. So so give me a brand. I mean, you mentioned Thinx and some other brands in the in the bio, but can you tell me a story of how one of these brands is actually using you to make increased lift or average car price or whatever the utility metric is you're driving?

Customer Story and Four-Product Strategy

Tomer Tagrin

01:33>> Definitely. Actually, one of the brands I like the most is Sol de Janeiro. It's a small brand of cosmetics that I just love. The Founder, she's great and like they're killing it, and not a lot of people know about them. So my favorite brands are actually, when I'm telling about brand, the brands of the tomorrow, Chubbies, I don't know if you're familiar with them, or men's, like really cool. So I think we're doing a few things.

01:53>> One, we have like four products going through our entire strategy, and I'm sure we're to talk about it, is like product expansion, but we started as a reviews platform. So we really help those brands generate content from their customers. Think about like product reviews, site reviews, and then we'll enable them to deploy it on the website, email marketing, social marketing, search marketing, to both increase like conversion rates, retention rate and decrease customer acquisition costs. And we

02:18>> can talk about exactly how we have a integration with Google Shopping. And we also have tons of widgets that you can put across the buyer journey to convert them better. Then we launch another product. Yeah. Sorry. Go ahead.

Nathan Latka

02:30No. No. I wanna... Real quick before you go into the other three products, I talk to a lot of multiproduct companies and a very telling kind of question and answer is always, what percent of your current paid base is currently paying and using for more than one of the products? In other words, how good are you at cross selling inside a product? What is that number for you? Do you know?

Cross-Sell Rate Across Products

Tomer Tagrin

02:49>> So now it's like 57%.

Nathan Latka

02:51That's pretty good.

Tomer Tagrin

02:51>> And 472% are more than three products.

Nathan Latka

02:56That's very good.

Tomer Tagrin

02:57>> Oh, three products and more. Sorry. Three products and more.

Nathan Latka

02:59Well, you only have four, right?

Tomer Tagrin

03:01>> Yeah. We'll have more. Let's come back to that. Let's come

Nathan Latka

03:05back to that later in the show. So on average, you know this because you listen to the show, but on average, have companies paying for one, two, three, four, or even four products sometimes. What's a brand gonna pay you, call it, per year to get started on the platform?

Freemium Model and Lead Generation

Tomer Tagrin

03:16>> Yeah. So even that we have a free product and a self-service that you can start with like $29 or $19 a month. It's actually our best lead gen. It's less as a revenue driver for us. It's more about like a lead gen because we believe that in commerce, have to serve the smaller players because the Glossier wasn't Glossier like five years ago. Right? So we actually like to support those. So on our free product, we have

03:39>> like 60,000 brands that are using our free product. So that's been very, very good for us as well.

Nathan Latka

03:46How have they found the free product? Is this an SEO play? Or what's the play there?

Distribution: Ecosystem Integrations and Agency Channel

Tomer Tagrin

03:50>> Yeah. So in commerce, it's not an... Some it is SEO, but to be honest, it's more about like, you have a few ecosystems. So the biggest one is Shopify, then you have Magento, or now Adobe Commerce Cloud, you have Salesforce Commerce Cloud, you have SAP Hybris, you have BigCommerce, WooCommerce. So what we did is we built a really, really intimate integrations with those. We really work in a lot to increase presence there. So from education

04:13>> to marketing dedicated in those ecosystems. And that's like the number one. I'd say another thing that's working for us really, really well is the agencies. Currently, we have a few hundreds of agencies that are deploying Yotpo on their customers. So think about it like ecommerce, dev or marketing agencies that are leveraging Yotpo for their customers.

Nathan Latka

04:32So Tomer, all the revenue you added last month, what percent was through your agency channel? 26. Okay. That's pretty good. Now now are your margins naturally worse in that channel because you pay kickback to the agencies or no?

Tomer Tagrin

04:44>> Yeah. Yeah. On the first year. Yeah. But they are... And roughly, like, our margins are, like, 80 and a little bit, I'd say 81, 82. And so like, we're actually enjoying like really high gross margins. So that's something that we are more than fine doing.

Nathan Latka

04:59That's good. Okay. I want to get more of your backstory, but first, so ignoring new customers and kind of how you're using the free product to drive the lead gen, the average customer you have today, what are they paying per year for the platform?

Tomer Tagrin

05:10>> Yeah. So again, it's really, really varied. The variance is really, really big. So averages here is like, can be confusing, I'll say. Yeah. But I will say, like, we look at this, like, two tiers or three tiers. The SMBs, on average, are paying around 15 k a year. And the mid markets are paying around 45 k a year. And we have a handful of enterprises. We haven't started going after enterprises. We have a handful that are

05:34>> paying like around 190.

Nathan Latka

05:36Okay, interesting. And when you break down the revenue split between SMB mid and enterprise, would you say it's like, you know, 20, 40, you know, 40? Or what does it look like?

Tomer Tagrin

05:46>> No, no, no, So SMB is where we started, and we are very, very focused. Would say SMB is around, like, 50 to 60%. Okay. And mid market mid market is our fastest growing part of the business, but it's still the total revenue base, I would say, between probably 30 to 40, and enterprise is another 10%.

Nathan Latka

06:04Interesting. Okay. So you have really perfected the model of moving people from a 15,000 plan to a $45,000 plan by cross selling products. It sounds like that's your biggest growth driver right now.

Tomer Tagrin

06:14>> Yeah. That's one. And also we live in industry that we are lucky that a lot of those businesses are exploding, right? They're growing themselves. Yeah. When you look at it, it was public, but when you look at Kylie Cosmetics, right, one of our customers, massive growth, amazing growth because of like their condition brands. So I think those businesses are growing. So we are growing with them. And definitely the second driver that the massive one is the

06:37>> multiple product without a doubt.

Nathan Latka

06:39How have you made sure to align your product pricing axes so that you can capture more wallet share as these brands grow? Or do you tie directly to GMV or number of SKUs or what is it?

Tomer Tagrin

06:51>> Yeah. So it's a great question. I don't think we like master it yet. We're working on it and I think like pricing is a never ending, it's always evolving. So I think it really depends on the product and there are some products that's different. So you think about reviews, it's more about how many consumers we're gonna engage with, how many consumers we're to send review requests, photo requests, etcetera. A loyalty and referrals, it's more about like

07:18>> how many customers are in loyalty club, or how many customers did a referral. And so it's... We try to basically align it to usage per product.

Nathan Latka

07:28Yeah, okay. But it's generally tied to some activation metric related to the customers of Kylie Cosmetics. How many reviews can you drive for Kylie from her customers? How many can you get into her loyalty program for your other product? Things like that.

Tomer Tagrin

07:42>> So then Kylie specifically not using our loyalty, but, again, you can go back to, like, Steve Madden. Right? Let's use our loyalty and our reviews. Yeah.

Nathan Latka

07:51Yeah. Okay. Interesting. Put this on a timeline for me. When did launch?

Company Timeline and Pivot

Tomer Tagrin

07:55>> 2011, we launched something completely different. End of two thousand eleven, like, completely different. We can talk about that as well. Then I think, like, the first product went live, like, end of two thousand twelve K. Probably, the real product. And we started monetize... Monetizing 2000... End of twenty fourteen or beginning of twenty fifteen, we actually started monetize.

Nathan Latka

08:16Okay. And how many customers have you scaled to today?

Customer Count and Funding History

Tomer Tagrin

08:19>> So now we have around, like, 4,000 paying customers. Okay. And we have, like I mentioned, like, another 60,000 on the, like, free products and that they're using the platform as well.

Nathan Latka

08:31So let me ask you. You talked... You kinda hinted here at a pivot. So between 2011 and 2014, when you launched your pricing, how were you paying yourselves? Did you guys raise capital on day one?

Tomer Tagrin

08:41>> Yeah. Yeah. It was the joke that I'm telling you internally that we thought we are nonprofit organization until that... But we understood, like, revenue is better than raising money. So, yes, it was based on, fundraising that we did.

Nathan Latka

08:53So before 2014, before you introduced pricing, how much total had you raised?

Tomer Tagrin

08:59>> I think it was, let me calculate, like 12,000,000

Nathan Latka

09:02Okay. And then today, how much total?

Tomer Tagrin

09:05>> 101.

Nathan Latka

09:07Okay. 101. And why did this kind of business need to raise that kind of money to scale?

Tomer Tagrin

09:14>> Yeah. So I think when you think of what we're trying to do, we're trying to do a few things. One, multiple product is really, really heavy on engineering. And so on one hand, you need to create each product. Right? You need to develop features and to make sure that you're gaining market share and ahead of the curve. On the other hand, you need to continuously launch new products, and you need to build a data platform. So

09:33>> that's really heavy on data science and engineering. That's the first one. Second, I'll say we like to move fast and make big bets and be aggressive when needed. So that allows us to do that and move quicker than most. And I'll say, and I'm sure you know that an inside sales model, the targeting starting SMBs, it's really usually it's like capital intensive in the beginning. And so I would say those are the mix of thing, but

10:00>> it's primarily engineering.

Nathan Latka

10:02Okay. So how many people total on the team today?

Tomer Tagrin

10:06>> Yeah. So currently, we're around three forty something people.

Nathan Latka

10:11Okay. And how many are engineers?

Tomer Tagrin

10:13>> We have in engineering around a 100 people.

Nathan Latka

10:16Okay. Okay. So pretty health... Pretty healthy amount of engineers there. Now are they based in The States, or do you have an outsourced dev team in Israel or somewhere else?

Tomer Tagrin

10:23>> No. No. So we actually founded the company out of Tel Aviv, in Israel. So our largest headquarters is actually still Tel Aviv around 200 people, engineering, data science, ops, some of the service people, some of the finance people. We have here in New York, where I'm based around 125 sales marketing client services, we have a small sales office out of London, and we acquired a company out of Boston. So we now have a Boston office.

Nathan Latka

10:50Which company in Boston?

Tomer Tagrin

10:52>> Swell.

Nathan Latka

10:53Swell. Interesting. Yeah. Yeah. Yeah. The loyalty, all these different product categories you're hitting are very fragmented. So it doesn't surprise me that you've kind of gotten bit by the M and A bug. I'm sure you probably have a couple more in your pipeline. Yeah. All right. Let's dive into this model you've been the inside sales model. So it's rare I find someone that has a freemium product that can take sixty thousand free users and convert some

11:15percentage of them right into a $15,000 first year ACV plan. So here here... Here's how I wanna kinda break this down numbers wise. I wanna understand expansion, but first, let's do the the not so fun thing. So gross churn annually is about what on a revenue basis?

Gross and Net Revenue Retention by Segment

Tomer Tagrin

11:28>> Yeah. So, again, I'll divide it... I'll give you the total, and I'll divide it to two segments. Before that, it's important to say, when you say like converting from freemium, yes, if freemium is our largest lead source, but also we have a lot of customers that are starting from like 20 k a year. It's not just like one funnel, if that makes sense.

Nathan Latka

11:47It does.

Tomer Tagrin

11:47>> It's an important end note. So I'll say on gross churn, total our gross churn now, I think the last time I checked was like 90%, I'll say, where the split is between SMBs as around like 84

Nathan Latka

12:04and mid your retention, just to be clear, not your churn.

Tomer Tagrin

12:07>> No. Yeah. That's a retention, not net retention. Gross retention. Yeah. You're right. That would be like

Nathan Latka

12:12That'd that'd be very bad business. I know.

Tomer Tagrin

12:15>> And the net retention, oh, no, sorry, the gross retention on mid market customers is 99%.

Nathan Latka

12:21Okay. So, yeah, so so so if you... So the the the easiest way I find a chat about this when there's a company like yours that's very mature and you have multiple cohorts and you should split those out is to, you know, the reason you have revenue churn is because it allows you to ignore massive ARPU differences. Right? So if you kind of give me the revenue number there across your entire base, I mean, it sounds

12:40like it's probably gonna be something like two or 3% annually gross revenue churn.

Tomer Tagrin

12:44>> Gross revenue churn? Let me... Again, I'm thinking about net retention. So I'll give you the net retention.

Nathan Latka

12:50We can go backwards from there. Yeah. What's net retention across the whole business?

Tomer Tagrin

12:53>> Net retention across the entire business is, like, 95%.

Nathan Latka

12:57Okay. And what's expansion typically across the entire business? Expansion revenue?

Tomer Tagrin

13:01>> Yeah. So we can think about it, right, we said, like, 89, 90, it's, probably 5% on the entire customer base, where mid market customers is around... The net retention is 140% on average, And on the SMBs is like 94% on average.

Nathan Latka

13:17Okay. Okay. So if your if your net retention across the entire base is 95%, that means all 95.5. Okay. 95.5. Yeah. That means so so that means even though you do have a good expansion machine, it sounds like you said across the entire customer... Well, SMBs, it was 5%, mid market, it was 40%. That means your churn on those have to be obviously greater than 5, 40% since your net revenue is 95% net revenue retention. Is that

Tomer Tagrin

13:45right?

13:45>> Yeah. And also the yes and no, because the mix of SMB is much heavier on, like, the current customer base versus the mid market. So on the mid market, for example, it's, like, 99% net retention... Gross retention. Yep. Right? And on the SMB, it's probably, like, 89%.

Nathan Latka

14:04Yep. Yep. Yep. No. That makes sense. Okay. And then so so break me... Kinda break down this model for me. Right? So so what is your kind of SDR to AE to customer success rep? What are your kind of your ratios look like?

Tomer Tagrin

14:15>> How have

Nathan Latka

14:15you built out your pro formas for salesperson onboarding?

Sales Model: SDR, AE, and CSM Ratios

Tomer Tagrin

14:18>> Yeah. Yeah. Definitely. So a, we're big delivering the model, and we really... Both of the founders are engineers. So we like to engineer things. We even engineer the go to market engine a little bit, even too much, I would say. But the idea is, like... So we know already when the leads come with, like, tons of machine that we build internally, should it go through an SDR or directly to an AE or directly to someone else? Like,

14:40>> we're pretty good in numbers now and accuracy. So that really helps to improve efficiency from where we started to where we are today. So I'll say on the mid market, we try to do it, like, actually two to one in favor of the SDR. Okay. And in SMB, it's more about like, probably one to one or one to 1.5 in favor of the SDR.

Nathan Latka

15:01Yep. Yep. Yep. Okay. So a, mid market two SDRs for one AE SMB, it's maybe one and a half SDRs for one AE.

Tomer Tagrin

15:08>> Yeah.

Nathan Latka

15:09Okay, that's good. And then what about after the sale happens? Does the account executive stay on them to get them activated? Or is there a CS rep?

Tomer Tagrin

15:15>> Yeah. No. No. There's a CSM. So on the bigger one, there's even an implementation team on the bigger deals, but it's mostly, like, 98% if you get a CSM, that CSM, she or he are helping you with, like, onboarding, and then they help you with, sorry, with, like, optimization, activation, QBRs, etcetera.

Nathan Latka

15:36Do you tie the CSM to one AE each or one CSM handle five AEs?

Tomer Tagrin

15:43>> Yeah. So we try that. The way we look at it is like ACV per CSM. So it's not per AE, meaning we want CSM to manage between 1.1 to $1,800,000. Yep. And so that's where we are at.

Nathan Latka

15:59That's interesting. Yeah. That's... That's okay. That's an interesting way to model that. So let me ask you a question. If your CSMs drive, better than average expansion revenue on the 1.1 to 1,800,000 ACVs they're managing, are they quota carrying? Do they get a part of that upside?

Tomer Tagrin

16:15>> Definitely. Definitely. Definitely.

Nathan Latka

16:16Cool. Just like a salesperson?

Tomer Tagrin

16:18>> Yeah. Definitely.

Nathan Latka

16:19Interesting. Very cool. Alright. Good. So, good. That's helpful. 101,000,000 raised, 340 folks on the team, a 100 engineers, 95% net revenue retention founded in 2011, had a bit of a pivot in 2014. Past four years, five years, you've grown about 4,000 customers. You said your smallest customers are paying, call it, you know, one point seven to two thousand dollars per month or call it 15 to $20,000 per year. Right?

Tomer Tagrin

16:43>> Yes. Besides the one that are in self-service that are paying, like, $90 a month, like, $1.09 just, like, to start with.

Revenue Today, Year-End Forecast and Growth

Nathan Latka

16:51So... Okay. So help me understand kind of MRR then today.

Tomer Tagrin

16:53>> From the from the annual customers, you're right. Yeah. We have some monthly self-service that's more for lead gen. And so for us, they are paying, like, in... They can pay, like, $19 a month.

Nathan Latka

17:03Yeah. So I can't take 4,000 customers times a 24,000 ACV to get, a 90, you know, 8,000... $98,000,000 run rate right now. You're below that because of your SMB cohort. Yes. Okay. Yes. I hope

Tomer Tagrin

17:15>> next year we'll get to that to that number. Okay. I mean, next year, I hope.

Nathan Latka

17:19And and what do you think you'll finish this year at?

Tomer Tagrin

17:23>> So I don't wanna jinx it, but I would say, like, north than... Like, much more north than $50,000,000 a fair amount K. And probably lower than 70.

Nathan Latka

17:35Okay. And what are at today?

Tomer Tagrin

17:39>> So again, I want see how the quarter ends. But I'll say we're like north of 40.

Nathan Latka

17:45Okay. North of 40. That's good. And then what does growth look like over the past twelve months? So twelve months ago, what were you... If you're doing 40 today, what are you doing twelve months ago?

Tomer Tagrin

17:52>> Yeah. So... Yeah. Yeah. So we've been growing in the last twelve months around like eighty eighty two, 83%, something like that.

Nathan Latka

18:00Okay. Very healthy. Very good. Alright. Let's let's wrap up here with the famous five number. Well, first off, any... When was the last round of capital that you raised?

Tomer Tagrin

18:08>> Like a year and a half... A year and a half ago.

Nathan Latka

18:11Okay. So you're you're raising right now. What valuation are you raising at?

Cash Position, Burn Rate, and Acquisition Plans

Tomer Tagrin

18:14>> No. Actually, we're not raising. Are you profitable now? Unfortunately, we're not profitable, but we have enough... A lot of money in the bank. We have around $50,000,000 in the bank. We're burning around $1,100,000 on a monthly basis.

Nathan Latka

18:27Your net burn is 1.1?

Tomer Tagrin

18:29>> Yeah.

Nathan Latka

18:30Yeah. I mean, good. You got plenty of runway there. That's obviously a healthy place to be. You're to use some of that cash in acquisitions. Am I going hear an acquisition announcement in the next six months?

Tomer Tagrin

18:38>> Definitely. Definitely. We're working on it very actively.

Nathan Latka

18:40Which product line will this acquisition get bulked onto? The loyalty, the reviews, or one of the other two?

Tomer Tagrin

18:46>> Yeah. So it's gonna be... Actually, we are still debating internally if it should be like on one of the product line or a new product line. It's more about finding the right team of what we learn. So we really try to spend as much time with the founders as possible. With the management teams, I think it's more important than, I don't know, on which product line we want to bring it on.

Famous Five Rapid-Fire Questions

Nathan Latka

19:08Yep. All right, very good, Tomer. Let's wrap up with the Famous Five. Number one, what's your favorite business book?

Tomer Tagrin

19:13>> So actually, there's... It's a new one. It's not like explicitly a business book, but I actually find it very, very soon. It's called like, How to Raise Successful People. And it's really, really good.

Nathan Latka

19:24Number two. Highly recommend.

19:26Number two, is there a CEO you're following or studying?

Tomer Tagrin

19:31>> Actually, there's a few, I think, I'll be here a cliche, but I think Ben Horowitz and his journey in his company was like, for me, unbelievably what he was able to pull off. And so I don't know if I think everybody's following him, but I don't know if I'll call it like a super special following him, but yeah.

Nathan Latka

19:46Number three, Tomer, what is a favorite online tool you have to build your business?

Tomer Tagrin

19:51>> So online tools, we have a lot. I will actually say one of the things that's not likely maybe segment. Yep. It's like, I think he's doing a great job.

Nathan Latka

20:02And number four, how many hours of sleep are you getting every night?

Tomer Tagrin

20:05>> So I have two young boys, like one is a baby, so, not a lot, unfortunately. Between, I'll say four to six.

Nathan Latka

20:13Okay, that's good. That's good.

Tomer Tagrin

20:15>> Yeah. And then, yeah, that's okay.

Nathan Latka

20:17So married and two kiddos, and then, how old are you?

Tomer Tagrin

20:21>> I'm 34.

Nathan Latka

20:2234. Very good. Alright. Last question. What do wish your 20 year old self knew?

Tomer Tagrin

20:28>> How important it is to be humble? Because everything is tougher than anything.

Nathan Latka

20:32Guys, be humble. The company, Yotpo, launched back in 2011, went through a couple pivots, now has raised a $101,000,000, burning $1,100,000 per month, but over 50 in the bank. So plenty of runway as they look to scale, helping ecommerce brands like Kylie Cosmetics scale with four different distinct product lines, 95% net revenue retention annually right now. Again, three distinct cohorts. They have, these inbound leads, are both generated from their 60,000 folks on their free platforms via

20:58integrations with WooCommerce, BigCommerce, and these other Magento, Shopify, etc. And also folks come in direct into their mid market plans even at $45,000 starting ACVs. Tomer, thank you so much for taking us to the top.

Tomer Tagrin

21:11>> Thank you.