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?