We reported a huge milestone for our team today as we hit $NZ100m in Annualized Recurring Revenue (ARR).
What is ARR?
ARR is a key metric for SaaS companies. It is the most recent month’s revenue multiplied by 12. Essentially, if we got no more customers in Xero, we’d bill this amount over the next year.
You can check out the media release here: Xero hits NZ$100m Annualised Revenue
Why is $100 million ARR so important?
When you start a company, $100m of revenue is one of the big milestones you dream of. Very few startups ever get there. $100m is a ‘real’ business. At many industry events we’d hear “we need to create 100 more $100m businesses.” All of our team are thrilled to be one of the very few companies to get there.
Most of the SaaS companies we follow are in the Enterprise space where they sell a smaller number of high value deals using traditional software selling models. You simply can’t do that in the small business market. Xero is a hybrid. A combination of complex business software (like SAP, Salesforce or Workday) coupled with a more consumer market like – high volume sales.
So the significance for achieving $100m quickly is an important validation for our business model and demonstrates Xero is one of very few software companies to have cracked the code of selling into the large, fragmented small business market. What’s also significant is that we have achieved these revenue numbers building a business primarily outside the US domestic market.
To date we have solely focused on customer acquisition to achieve our revenue. We didn’t use a freemium model as we correctly believed that small businesses will pay directly for quality software solutions that improve their business. While we’ve focussed solely on customer acquisition our healthy ecosystem of 300+ add-on partners have successfully leveraged our customer base and channel to build their own successful businesses without massive sales and marketing spend. This confirms our belief that once you have created a relationship through accounting software, there is plenty of opportunity to grow revenue from existing customers by adding new products and services while making life even easier for them. As we complete core accounting we can turn our mind and resources into many additional services to create new revenue opportunities.
There is a massive investment to build these types of businesses and it doesn’t seem that long ago when were excited to get our first 1000 customers. It was only back in 2009 our revenues were just under $1 million. In 2010 we did $3 million. It wasn’t long ago we hit a million a month which was another big day. It’s very gratifying to see that massive multi-year investment beginning to deliver.
The scary thing is it is still so early. We’re thinking five to 10 years out and over the last year have added so much fantastic new talent into the business. We don’t see barriers for us to grow to a billion of revenue over time.
A huge thank you to our team who have worked tirelessly for seven years. Thank you to our partners and customers. We know we still have so much to do but with your support we are able to keep investing.
Our most exciting work is yet to come.