David Cummings on Startups

Revenue Growth vs Logo Growth

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David Cummings

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As a growth-oriented entrepreneur I’m always focused on new annual recurring revenue. Only, at Pardot, we had a heavily-funded competitor that was focused on logo growth. Meaning, they’d do everything in their power to sign up a new customer — a new logo — even if that meant discounting their product by 50% or more in the first year so that they could then charge much higher prices in later years. In hindsight, we were playing two different games: revenue growth vs logo growth.

Here are a few thoughts on revenue growth and logo growth:

Revenue Growth

  • Best for most startups
  • Better if bootstrapped or capital light
  • Easier to understand the value
  • Fluctuates based on the customer size

Logo Growth

  • Best for platform companies where scale matters
  • More expensive short-term but potentially more valuable over the lifetime of the customer
  • No difference whether signing a large or small customer

If there’s an opportunity to build a platform company, and capital is readily accessible, logo growth makes sense. For most startups, revenue growth is the more common focus.

What else? What are some more thoughts on revenue growth vs logo growth?

Comments

One response to “Revenue Growth vs Logo Growth”

  1. Dave Avatar
    Dave

    For early stage companies looking to maximize value higher in the value chain my experience is that logo growth is most valuable and then growing into the business you are looking to become. Especially when looking at market share of top logos in your target leads to a much higher valuation unless you are chasing a lower cost, lower service mid markets as acquirers and future customers care most about logos and analysts recommendations. I think Pardot had the analyst nailed and recurring revenue which in my opinion lead to the high multiple. The optimal is 1- recurring revenue, logo market dominance/ share, and #1 analyst ratings by a company such as Forrester. With the logos it is key to show 1- retention, 2- revenue growth and strong customer refer feel for acquirers, analysts, investors, etc.

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