The Road to a $1M Recurring Revenue SaaS Startup

One of my personal goals is to help more Software-as-a-Service (SaaS) startups reach $1 million in annual recurring revenue while raising less than $1 million in money from investors. As part of that goal, it’s important to help paint the picture for what that looks like so that it’s more readily visualized by entrepreneurs. Sure, it’s easy to say sign up 83 customers paying $1,000/month and you’ll be there but the reality is that most SaaS startups can’t command $1,000/month per customer, especially in the early days.

For Pardot, it took 2.3 years from start of the business to hit $1M in annual recurring revenue (ARR). We started at roughly $150/month on average per new customer and were up to $500/month on average per new customers by the time we achieved a seven figure run rate (side note, it took 4.7 years to hit $10M in recurring revenue, so the first million really is the hardest). Pardot was an exceptional experience and not normal.

For most startups, I would expect three to fours years before getting to $1M in ARR, assuming the business is going well (with SaaS it’s fairly easy to see if a business is going to succeed based on how the recurring revenue layers on top of itself each year). So, if it takes four years to get to $1M recurring, and the goal is burn less than $1M all-time to get there, that only leaves $250k/year for the annual burn — much less than most startups that raise a full seed round burn (see Death to the $700k Seed Round).

In the end, the moral of the story is to plan for a long, hard path to get to $1M in recurring revenue, and as part of achieving that milestone, be scrappier than anticipated by being more capital efficient and burning less than $1M in investor money.

What else? What are some other thoughts about the road to $1M in recurring revenue for SaaS startups?

8 thoughts on “The Road to a $1M Recurring Revenue SaaS Startup

  1. I’ve found that in the beginning you can’t outsource sales. The CEO must be the chief sales officer and everyone on the team has to be involved in the selling process. Customers only buy from your nascent startup because they believe in you. You can start closing sales only once customers trust you and believe you will be there for them.

    Obviously that won’t scale, but the first customers are critical. So, go get them yourself.

  2. What affected your growth? I’m curious to know a bit about your customer acquisition strategies. Did anyone on your team employ media buying or affiliate programs? It would seem to me that the time frame to reach $1 million would be affected by the conversion funnel. A partner and I would like to achieve the $1M/year mark in 12 months (average cost per customer of $125 across a 3-tried pricing plan). The number we ran said we’d need ~1000 customers and 20,000 targeted leads. Using both life and automated webinars vs. typical 14-30 trials years to close the sale. We’ve achieved conversion rates as high a 10% on life webinars. I’d be curious to hear your thoughts. Thanks. BTW, didn’t mention traffic sources but the plan is to combine targeted inbound marketing with display, mobile, social and email marketing. Your thoughts? Tx!

    1. We didn’t do any market research. The idea for it came from challenges my other software company experienced.

      1. Hi David – great blog and Happy Thanksgiving. What were your biggest challenges in the early days when it comes to boosting lifetime value and managing customer acquisition costs? Did you architect a touchless sales process (David Skok speaks a lot about this)? Also, I’m curious about your pricing strategy. One fellow founder I know picks monthly pricing based on 10% of LTV based on his users/customers stats. Ex. You’ve built a project management tool for emerging market hedge fund managers (LTV per year is $100,000 per client) – so monthly pricing is $1,000.

      2. We employed a labor intensive sales and on boarding process that was all done remotely using GoToMeeting. It worked extremely well.

  3. What drives the $1m capital constraint? Why is that important here? To expel tent that you need to burn more capital, why not?

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