This post is by Jason Lemkin from SaaStr
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Xero is one of those SaaS companies most of us have heard of and know is a big success and sort of know about, but, not really ? What lessons can we learn from this huge Kiwi SMB success, for other founders? Here are a few:
- All the way until $600m+ ARR, the majority of Xero’s new bookings and revenue still came from Australia and New Zealand! Only in this quarter did their “international subscriber additions exceed those from Australia and New Zealand, with particularly strong growth in the U.K.” So even in SMB sales in smaller markets, if you take dominant market share — you can get to $500m+ in ARR!But yes, the core market is mature — but at $640m+ ARR. New Zealand is growing 18% now, at 351,000 total subscribers. The UK though is growing 46%, at $120m+ ARR.
- The U.S. isn’t . The U.S. remains an important but smallish market for Xero, at only $44m and 195k of their 1.8m subscribers.
- Churn is 1.1% from SMBs. Most of the companies in this 5 Interesting Things Series have had net negative churn from SMBs (e.g., Zoom, PagerDuty, etc.). Xero’s SMB churn isn’t zero. But it’s low. It’s 1.1%. Aim for that at least in your SMB segment if you can, and if you can provide at least as much value as Xero.
- Customer Lifetime Value is 81 months, from SMB That’s impressive. This is a critical metric. Inclusive of upsells and churn, their ARPU is $29.25 and LTV is $2,398. That means an effective 81 month customer lifetime value from SMBs. Not bad!
- Their CAC isn’t small/short at 13.6 months. It takes them over a year to go profitable on an SMB customer. They have a sales-assisted SMB sales process, which isn’t easy to make efficient. But they’ve done it. A LTV/CAC of 6.0 makes for a very efficient model.