SaaS: Billion Dollar Revenue Club
Insights from SaaS companies Who Have Achieved $1B in Revenue
Over a decade ago, Cowboy Ventures’ founder Aileen Lee coined the name “unicorn” for private companies that were valued at over $1B. In 2013, unicorns were rare. There were fewer than 40 companies that were valued at over $1B. Now, there are over 2,500 private companies valued at over $1B. Being a unicorn is no longer rare. And if we’re being honest, being a unicorn was never a great indication of market traction, business scale or building a sustainable business.
last year coined the term “The Billion Dollar Revenue Club” to denote companies that achieved over a billion dollars in revenue. While Nikhil focuses on the potential of private companies achieving this milestone, reading the post sparked my interest in exploring how many public SaaS companies have achieved a billion dollars in revenue. Below are some takeaways from the 32 public SaaS companies that have achieved $1B in revenue.1. There are 3 ways to build a $1B SaaS business
A few years ago Christoph Janz of Point Nine Capital penned a blog post detailing the Five Ways to Build a $100 million SaaS business. Essentially, he broke down how many customers you'd need, based on your average revenue per account (ARPA), to hit that once coveted $100 million in annual revenue. According to Janz, there are five ways to build a $100M business -
$100 ARPA x 1M customers
$1K ARPA x 100K customers
$10K ARPA x 10K customers
$100K ARPA x 1K customers
$1M ARPA x 100 customers
Now, fast forward to today, let's take a look at the ARPA of SaaS companies with over $1 billion in revenue.
Stepping back for a moment, the playbook to hit $1 billion in revenue looks a bit different from reaching $100 million. ARPAs in the $100-$1K range are too low to be a winning strategy here. To build a $1B SaaS business, there are three main avenues:
100K customers @ $10K ARPA
10K customers $100K ARPA
1K customers @ $1M ARPA
At the high end of the spectrum there is a huge outlier that I’d be remiss if I didn’t mention - Palantir. This company has over $2B of revenue with fewer than 500 customers. At an ARPA of almost $5 million the company is a true outlier - the second highest ARPA is less than $2 million.
2. Vertical SaaS companies rarely achieve $1B in revenue
Vertical SaaS refers to solutions designed specifically for particular industries or niche markets. In contrast, horizontal SaaS caters to a broader range of industries and functionalities, aiming for versatility rather than specialized focus. For example, Veeva is a vertical SaaS company specifically tailored for the life sciences industry - the company helps their customers streamline their operations and compliance processes through its specialized software.
Of the 32 public SaaS companies that have achieved $1B in revenue, only four of these are vertical SaaS companies: Blackbaud, Shopify, Toast, Veeva. Why do vertical SaaS companies rarely make it to the Billion Dollar Revenue Club? These companies are niche experts, specializing in specific industries or markets. These companies can nail unit economics by catering to a specific market segment. They can also have attractive ARPA and customer retention metrics because they deeply meet the needs of one industry. They also generally have less competition because of a smaller TAM. While that focus can be great for serving a dedicated customer base, it also puts a cap on their revenue potential. To hit that billion-dollar mark, you need scale. Vertical SaaS companies suffers from a smaller TAM because vertical SaaS companies cater to a specific industry and the ceiling to the TAM is the size of the industry. The playbook to success for a vertical SaaS company would be to have a very high ARPA (e.g. in the $1M+ range) so it can achieve a $1B even with a small number of customers.
3. Usage-based pricing is an accelerant to growth
Most SaaS companies historically have used a seat-based pricing model. Usage-based pricing is a relatively new pricing model in SaaS and one that has supported rapid growth for some companies that have nailed the model. 4 of the 10 SaaS companies that achieved $1B in revenue the fastest leveraged a usage-based pricing model: Snowflake, Datadog, Toast and Elastic.
In usage-based pricing, the price charged by a company is linked a lot more closely to the value delivered to the customer than in a seat-based model. If a company can build a good product that delivers meaningful value over incumbent solutions, this pricing model can drive outsized revenue to the company. These companies have much greater revenue upside as customers who extract excess value from a solution will happily pay more for that solution. Customers also tend to prefer value-based pricing models as they only pay when they extract value from the solution.
Data from ICONIQ supports the potential upside from this pricing model: usage-based pricing models results in a higher growth rate (199% vs. 116%) versus subscription models. Additionally, these companies have a higher net retention rate across revenue scale - ARPA for these models can rapidly grow as the companies deliver value to their customers based on usage.
It is important to note that down-funnel pricing models like a usage-based pricing model are more risky than a seat-based model as revenue can fall if product usage drops for some reason (e.g., undesirable product changes, a weak economic cycle). Also, some big customers prefer to have constant/predictable cost line items in their P&L every year vs changing/unpredictable line items.
4. Companies are growing fast even after hitting $1B in revenue (median 47% YoY growth)
Reaching the $1 billion revenue mark is not a marathon. It’s a sprint. A 15 year sprint. These companies are executing a land grab and when SaaS companies hit that $1B milestone, they're typically growing at a whopping 47% year over year.
Even within the Billion Dollar Revenue Club, there is one standout - Zoom. The company not only hit $1B but smashed it with a jaw-dropping 326% growth. That’s ~4.25x growth in one fiscal year - from $622M to $2.7B. This growth was fueled from the COVID-induced remote work boom. It's the kind of opportunity you don't see every day, and Zoom nailed it by offering just what the world needed at the right time.
5. Median time to achieve $1B in revenue is 15 years
The “T2D3” model is often used by VCs to forecast ARR growth for successful SaaS companies. The T2D3 model states that after achieving product-market fit (within 2 years of founding), a successful SaaS company should triple ARR for 2 years (“T2”) and then double revenue for three successive years (“D3”). If a company can hit this benchmark, then within 7 years of founding the company can achieve $100M in ARR and meets the minimum threshold to go public.
Given that the benchmark of a successful VC-backed SaaS business is achieving $100M in revenue within 7 years of founding - it’s remarkable that 3 companies achieved $1B in revenue within 10 years of founding and 11 companies achieved this benchmark within 12.5 years of founding. In addition to these outliers that have achieved $1B in less than 12.5 years, I’m surprised that the median number of years to hit $1B in revenue amongst this cohort is so low. Achieving product-market fit in a large market can lead to outsized revenue outcomes.
6. The $5B Revenue Club is the new Billion Dollar Revenue Club
To date, only 32 SaaS companies have entered the Billion Dollar Revenue Club. In 2023 alone 8 SaaS companies achieved the $1B revenue milestone - this is the same as the number of companies with $1B in revenue at the start of 2020!
Looking ahead, the Billion Dollar Revenue Club will become less exclusive. There are approximately 30 public companies with ARR between $500M and $1B in revenue, many of who will achieve $1B in revenue in the coming years. Additionally, some private companies likely have already reached this milestone and will go public soon - namely Databricks and Canva.
The next benchmark, at least for public companies, will be the $5B Revenue Club. Currently there are 5 companies in the $5B Revenue Club: Adobe, Salesforce, ServiceNow, Shopify and Workday. In the next three year, I expect that we add another 4 companies to the club: Atlassian, Crowdstrike, Twilio, Zoom.
Stay tuned as we dive into that $5B Revenue Club in an upcoming post.