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Is it actually possible to make a living out of blogging? Or is it just a myth?
Here’s the good news: You CAN make money from blogging. You just have to do it right.
Take my blog as an example.
Blogging played a crucial role in my success. But reaching this point did have its fair share of obstacles, mistakes, and lessons.
Currently, my revenue is $381,772 for 30 days.
Now, that’s a LOT of money, especially for a blog.
But how am I able to pull this off?
I was completely dedicated and put in tons of hard work to create useful and detailed content and use relevant images to provide accurate and thorough information to my readers.
This helped me become an authoritative figure and thought leader in my niche.
And no, it doesn’t have to take you years to become a successful blogger.
Knowing the art of consistently churning out top-quality content, driving search engine traffic, leveraging social media, and generating leads is great. But you also need to know how to make money from your blog.
The process is certainly challenging, especially with the internet painted with a lot of bad advice.
But this isn’t one of those articles.
In this guide, I’ll show you the exact way to make money from blogging by avoiding the mistakes I’d made in my 10-year journey. So not only will your blogging success be easier, but it also is quicker.
Excited? Let’s begin.
Your 2-Minute Cheat Sheet
The very first thing you need to start making money is to come up with an idea and the name for your blog. Think through the topics you’d want to write about often.
After that, sign up for the Basic plan with Bluehost. Even if you don’t have much of a budget, this is practically a steal at just $2.95 per month.
Set up your account, taking care to skip all the add-ons except for domain privacy and protection. A few extra dollars for better privacy and security is an investment.
And with this, you’ll have your own blog domain. Hurrah!
The next steps will have you installing WordPress and then finally writing and publishing your first blog post.
Once you’ve posted a couple of blogs and have started to attract some traffic, you can work on monetizing it to make your first dollars.
For this, you’ll have to sign up for a Google AdSense and Amazon Associates account to make money through ads and affiliate marketing, respectively. You can also sell your own products and services after successfully driving high traffic to your site.
That was the basics. Let’s get into the details now.
Step 1: Figure Out Your Blog’s Niche
The first on the agenda is to decide what your blog is going to be about. Whether you want to talk about marketing, CBD, veganism, or just random life stories, figure it out.
Remember, your idea doesn’t have to be revolutionary, but you do need a unique voice.
Here are two tips for deciding on a blog niche:
Choose Something That You Enjoy
I know that this sounds like a cliche, but it makes no sense to blog about it if you don’t love the topic.
Never start blogging about something that you don’t love–it will show in your writing and your readers will know. Moreover, you won’t be able to consistently produce top-notch content to build your audience and later monetize from it.
Make a list of things that get you naturally curious and that you enjoy learning about. Or think about what your friends and family come to you when seeking advice.
Find Out Whether a Prospective Niche Has a Readership
The only way you can earn money through your blog is if you have enough site visitors.
Let’s assume you’ve already figured out your blog niche and want to write about arts and crafts.
You make a smart decision to niche down further and develop a blog exclusively dedicated to either paper art or scrapbooking. While you enjoy writing about both topics, you prefer to focus on one primarily.
But how do you choose between the two options?
Answer: Do a quick Google search.
As you can see, there are far more results related to paper art as opposed to scrapbooking. Therefore, it makes more sense to write about paper art, which is what audiences are searching for.
I would also like to add that it’s better to avoid broad or generic topics. Don’t be afraid to get specific as long as you have takers for it.
For instance, if you want to create a food blog, don’t use words like “food.” Instead, use “barbecue” or “vegan.”
Get my point?
Step 2: Name Your Blog
Once an idea is in place, you need to work on naming your blog.
Does the name Stefani Joanne Angelina Germanotta ring a bell? Thought so.
But I bet Lady Gaga does.
Stefani Joanne Angelina Germanotta is Lady Gaga’s real name. She decided to go with a catchier and easier-to-remember alternative that aligns better with her music.
That’s the power of the right name.
Choosing a blog name is equal parts exciting and daunting. After all, this will be your brand name and dictate how people will remember you.
Don’t overthink it, and don’t name your blog something random or offensive.
Keep in mind the following questions when deciding on a name:
- Does it reflect what your blog is going to be about?
- Would your target audience like it?
- Is the name easy to say and spell?
- Is it short and concise?
I chose my own name as my domain (NeilPatel.com) simply because Neil Patel is who I am, and it’s also my brand. You could do what I did or come up with something entirely different.
Whatever name you come up with, make sure it’s available as website domains.
You can use Bluehost’s domain name checker for this purpose. Type in each potential name in the search bar, and click Check Availability to know.
I’d recommend opting for a .com whenever possible.
Don’t buy an available domain at this point. I have something up my sleeve to help you get it for free.
Step 3: Sign up With a Web Host Like Bluehost
You need to sign up for a web hosting service to get your blog live, along with a registered domain name that will serve as your blog’s address.
I recommend Bluehost as its hands down one of the best web hosting companies—not to mention affordable—that assures excellent service and a free domain.
And did I mention that as a NeilPatel.com reader, you get an additional discount?
Head over to Bluehost.com, and click on the green Get Started Now button.
Next, sign up for the Basic plan. You can always upgrade later, but since you’re just starting a blog, it’s better to stick to the Basic plan.
Register the domain name you came up with without having to pay anything extra. Just make sure the drop-down is set to .com before you click Next.
Following this, you need to sign in using your Google account. You can also manually enter your personal credentials.
Scroll down to choose your registration term, which can either be a 36-month, a 24-month, or a 12-month agreement. To get the best deal ($2.95 per month), you’ll have to sign up for a three-year contract.
It still isn’t over yet.
You’ll find package options like Domain Privacy + Protection, Codeguard Basic, Bluehost SEO Tools, Microsoft 365 Mailbox Trial, and SiteLock Security Essentials.
In my opinion, you only need Domain Privacy + Protection to protect your contact information against scam callers and unsolicited emails. Ignore the others.
Finally, enter your payment information, read the terms and conditions, and hit submit.
This is the point where you’ll have your blog!
Complete all the remaining instructions to set up your account, and then move onto the next step.
Step 4: Install WordPress CMS
You have your web host, next you need blogging software.
I trust WordPress to run all my blogs as it is user-friendly, feature-rich, and free. Plus, you can install thousands of free plugins to make your blog more functional and customize it however you want.
After signing up for Bluehost, you will have a free domain and hosting account. Log in by filling in your credentials and then click on Install WordPress.
Next, select Do it yourself (FREE) and hit Install, followed by Check Domain. Lastly, acknowledge WordPress’s terms of service and finalize your install.
Ta-Da! You now have a fully functional WordPress blog ready to roll.
Step 5: Design Your WordPress Blog
To design a blog, you need to select an attractive and affordable WordPress theme.
Why do you need this? Well, after signing up for WordPress, your blog will look something like this:
Not exactly what you’d call sleek and welcoming, right? The way your website looks can help drive more website traffic, which, in turn, will enable you to make more money.
Luckily, WordPress has thousands and thousands of themes for you to choose from. I’ve even done a roundup of some of the best ones. Here’s how you can select a WordPress theme:
- Log into your WordPress account.
- Click on Appearance in the sidebar menu on your dashboard.
- From the drop-down options, select Themes.
- Go to Add New, located at the very top of the screen, to gain access to thousands of fancy WordPress themes. You can also click on Feature Filter to filter your search to see options more suited to your tastes.
You should choose a theme that fits your personal style, but at the same time, it should also be in sync with your blog niche.
- Preview the theme to see what it will look like.
- If you like the sneak peek of a specific theme, click on Install and then Activate.
With a nice new theme, your website will get a much-needed upgrade that makes it look appealing to visitors.
Step 6: Come up With Interesting Blog Topics
If you want to increase your website traffic or encourage more email signups, you need to offer your readers interesting content.
My tip is to make a list of questions you get often. Trust me, within just 30 minutes, you’ll be able to come up with a bunch of potential blog topics. Your priority should be to look at things from your reader’s viewpoint.
You can also focus on higher-level questions.
Suppose you want to start a parenting blog for stay-at-home moms. Below, I’ve created a list of questions to ask yourself, along with a list of answers concerning the mom blog.
Q1) What could be an intriguing or exciting talking point for your readers?
For stay-at-home moms, topics related to sleep training, homeschooling, and budget-friendly meal ideas could be a great place to start.
Q2) What are your reader’s pain points and challenges?
Common household challenges for stay-at-home moms could be meal planning, understanding developmental milestones, and so on.
Q3) What are your readers’ character traits?
Moms are typically patient and caring and appreciate a sense of humor.
Q4) What niche topics would appeal the most to your readers?
A child’s mental, physical, and emotional development could be attractive talk points for stay-at-home moms.
Q5) What topics would your readers hate about my niche?
Stay-at-home moms don’t like to be looked down on by others. So, you could write blogs about how society views them and their impact.
Similarly, you can use the above questions to come up with ideas according to your niche. While you’re at it, don’t forget to work out a catchy headline that will make the reader instantly click on your blog.
Step 7: Optimize Your Blogs for the SERPs
Search engine optimization or SEO is a crucial step to earn money via blogging. Here, you will optimize your website to rank higher in search engines for specific keywords and phrases.
If you’ve been following me for a long time, you may already know how SEO is my trump card.
By incorporating particular keywords and phrases, I’ve successfully driven more than 30 million visitors to my website. Shocked?
That’s the power of SEO.
On WordPress, you can optimize your content and blog by downloading a plugin called Yoast SEO.
Go to the Plugins menu, and click on Add New. Search for Yoast SEO in the search bar, and then install the plugin.
Don’t forget to activate it to complete the installation process.
You’ll find that this plugin will give you all kinds of improvement tips and suggestions based on the keyword you select to help you optimize your content. I’d recommend incorporating as many suggestions as you can to improve SEO and content readability.
Step 8: Sign up for Google AdSense
Setting up ads is the best way to monetize your blog. But you need to be smart about it.
The biggest mistake people make is to bombard their sites with blinking ads. Avoid this at all costs.
Instead, focus on using targeted ads that appeal to your customers without annoying them.
To start earning money through ads, you need a Google AdSense account. Head over to the AdSense page, and click on Sign Up Now. If you don’t have an existing Google account, you have to set up a new one. If you already have a Google account, simply sign in.
Fill out all the relevant information before submitting your application. The AdSense team reviews every application, and if everything goes well, you’ll be in!
Next, follow the below steps to set up your account:
- Go to your AdSense dashboard and click on My Ads > New ad unit.
- Select the size of your ad and the type of ad. Once you’re done, select Save and get code.
- You’ll get a bit of code that you’ll then have to copy and paste between your page’s <body> tags. Here’s how it’ll look.
- Once you’ve pasted the code, your ad will be live. Your AdSense dashboard will have all information about your earnings, so check it regularly.
While you can use ads on as many as you want, I would recommend starting with just one–maybe two max–to get an idea of how your audience responds to them.
If you see a higher bounce rate on your dashboard, you should consider repositioning your current ads for better results.
Step 9: Create an Amazon Associates Account
You might have already heard of affiliate marketing. If your goal is to earn passive income, leveraging the power of affiliates is your best bet.
You can start by signing up for Amazon Associates, which allows you to start earning right away through referral links, display ads, or Amazon-based shopping carts.
If your visitors decide to use your referral link or click on the display ads, you’ll get a small commission.
To sign up for Amazon Associates, all you need to do is visit the website and click on Join Now for Free.
This can be pretty effective. Just check out these earnings of Brendan Mace for definitive proof.
Amazon Associates isn’t the only affiliate program.
You’ll be happy to know that there are plenty of companies with their own affiliate programs, some of which pay higher commissions than Amazon. Just make sure to research before signing up to be an affiliate for a brand.
That said, I’d also like to emphasize the importance of advertising only those products or services that you’ve used yourself or genuinely believe can help your audience.
Step 10: Offer a Product or Service for Sale (Optional)
Many people think that advertisements are the only source of income for bloggers. This might be true for a few, but you’ll also find many bloggers make quite a bit of money by selling a product or service.
Of course, this will only work when you already have a loyal readership with steady website traffic like Nomadic Matt. Once you’re at this stage, you shouldn’t be afraid to take the leap.
Here are a few things that you can consider selling:
- Training courses
- Video courses/webinars
- Coaching services
- Consulting services
Next, you have to figure out how you want to sell your product. Services like Shopify or WooCommerce plugins on WordPress, Amazon, or Etsy are great options for digital products. If you’re selling a physical product (like phone cases or clothes), you’ll have to set up a more comprehensive ecommerce store.
Finally, let your audience know about your product or service by sending them emails. You can also consider developing lead magnets like pre-recorded webinars, PDFs, and whitepapers to build your email list.
There’s a difference between simply having a blog and monetizing a blog. To make this transition successful, you’ll need to adopt a more proactive and focused approach.
You’ve got this!
Just remain focused and work consistently to keep improving your blog and build trust between you and your audience. And follow my steps above to get things started on the right track.
Remember to stick with what works, and you’ll have a successful formula.
Have you tried blogging yet? Let me know about your experience.
Extra Crunch roundup: Antitrust jitters, SPAC odyssey, white-hot IPOs, more
Some time ago, I gave up on the idea of finding a thread that connects each story in the weekly Extra Crunch roundup; there are no unified theories of technology news.
The stories that left the deepest impression were related to two news pegs that dominated the week — Visa and Plaid calling off their $5.3 billion acquisition agreement, and sizzling-hot IPOs for Affirm and Poshmark.
Watching Plaid and Visa sing “Let’s Call The Whole Thing Off” in harmony after the U.S. Department of Justice filed a lawsuit to block their deal wasn’t shocking. But I was surprised to find myself editing an interview Alex Wilhelm conducted with Plaid CEO Zach Perret the next day in which the executive said growing the company on its own is “once again” the correct strategy.
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In an analysis for Extra Crunch, Managing Editor Danny Crichton suggested that federal regulators’ new interest in antitrust enforcement will affect valuations going forward. For example, Procter & Gamble and women’s beauty D2C brand Billie also called off their planned merger last week after the Federal Trade Commission raised objections in December.
Given the FTC’s moves last year to prevent Billie and Harry’s from being acquired, “it seems clear that U.S. antitrust authorities want broad competition for consumers in household goods,” Danny concluded, and I suspect that applies to Plaid as well.
In December, C3.ai, Doordash and Airbnb burst into the public markets to much acclaim. This week, used clothing marketplace Poshmark saw a 140% pop in its first day of trading and consumer-financing company Affirm “priced its IPO above its raised range at $49 per share,” reported Alex.
In a post titled “A theory about the current IPO market”, he identified eight key ingredients for brewing a debut with a big first-day pop, which includes “exist in a climate of near-zero interest rates” and “keep companies private longer.” Truly, words to live by!
Come back next week for more coverage of the public markets in The Exchange, an interview with Bustle CEO Bryan Goldberg where he shares his plans for taking the company public, a comprehensive post that will unpack the regulatory hurdles facing D2C consumer brands, and much more.
If you live in the U.S., enjoy your MLK Day holiday weekend, and wherever you are: Thanks very much for reading Extra Crunch.
Senior Editor, TechCrunch
Rapid growth in 2020 reveals OKR software market’s untapped potential
After spending much of the week covering 2021’s frothy IPO market, Alex Wilhelm devoted this morning’s column to studying the OKR-focused software sector.
Measuring objectives and key results are core to every enterprise, perhaps more so these days since knowledge workers began working remotely in greater numbers last year.
A sign of the times: This week, enterprise orchestration SaaS platform Gtmhub announced that it raised a $30 million Series B.
To get a sense of how large the TAM is for OKR, Alex reached out to several companies and asked them to share new and historical growth metrics:
“Some OKR-focused startups didn’t get back to us, and some leaders wanted to share the best stuff off the record, which we grant at times for candor amongst startup executives,” he wrote.
5 consumer hardware VCs share their 2021 investment strategies
For our latest investor survey, Matt Burns interviewed five VCs who actively fund consumer electronics startups:
- Hans Tung, managing partner, GGV Capital
- Dayna Grayson, co-founder and general partner, Construct Capital
- Cyril Ebersweiler, general partner, SOSV
- Bilal Zuberi, partner, Lux Capital
- Rob Coneybeer, managing director, Shasta Ventures
“Consumer hardware has always been a tough market to crack, but the COVID-19 crisis made it even harder,” says Matt, noting that the pandemic fueled wide interest in fitness startups like Mirror, Peloton and Tonal.
Bonus: Many VCs listed the founders, investors and companies that are taking the lead in consumer hardware innovation.
A theory about the current IPO market
If you’re looking for insight into “why everything feels so damn silly this year” in the public markets, a post Alex wrote Thursday afternoon might offer some perspective.
As someone who pays close attention to late-stage venture markets, he’s identified eight factors that are pushing debuts for unicorns like Affirm and Poshmark into the stratosphere.
TL;DR? “Lots of demand, little supply, boom goes the price.”
Poshmark prices IPO above range as public markets continue to YOLO startups
Clothing resale marketplace Poshmark closed up more than 140% on its first trading day yesterday.
In Thursday’s edition of The Exchange, Alex noted that Poshmark boosted its valuation by selling 6.6 million shares at its IPO price, scooping up $277.2 million in the process.
Poshmark’s surge in trading is good news for its employees and stockholders, but it reflects poorly on “the venture-focused money people who we suppose know what they are talking about when it comes to equity in private companies,” he says.
Will startup valuations change given rising antitrust concerns?
This week, Visa announced it would drop its planned acquisition of Plaid after the U.S. Department of Justice filed suit to block it last fall.
Last week, Procter & Gamble called off its purchase of Billie, a women’s beauty products startup — in December, the U.S. Federal Trade Commission sued to block that deal, too.
Once upon a time, the U.S. government took an arm’s-length approach to enforcing antitrust laws, but the tide has turned, says Managing Editor Danny Crichton.
Going forward, “antitrust won’t kill acquisitions in general, but it could prevent the buyers with the highest reserve prices from entering the fray.”
Dear Sophie: What’s the new minimum salary required for H-1B visa applicants?
I’m a grad student currently working on F-1 STEM OPT. The company I work for has indicated it will sponsor me for an H-1B visa this year.
I hear the random H-1B lottery will be replaced with a new system that selects H-1B candidates based on their salaries.
How will this new process work?
— Positive in Palo Alto
Venture capitalists react to Visa-Plaid deal meltdown
After news broke that Visa’s $5.3 billion purchase of API startup Plaid fell apart, Alex Wilhelm and Ron Miller interviewed several investors to get their reactions:
- Anshu Sharma, co-founder and CEO, SkyflowAPI
- Amy Cheetham, principal, Costanoa Ventures
- Sheel Mohnot, co-founder, Better Tomorrow Ventures
- Lucas Timberlake, partner, Fintech Ventures
- Nico Berardi, founder and general partner, ANIMO Ventures
- Allen Miller, VC, Oak HC/FT
- Sri Muppidi, VC, Sierra Ventures
- Christian Lassonde, VC, Impression Ventures
Plaid CEO touts new ‘clarity’ after failed Visa acquisition
Alex Wilhelm interviewed Plaid CEO Zach Perret after the Visa acquisition was called off to learn more about his mindset and the company’s short-term plans.
Perret, who noted that the last few years have been a “roller coaster,” said the Visa deal was the right decision at the time, but going it alone is “once again” Plaid’s best way forward.
2021: A SPAC odyssey
In Tuesday’s edition of The Exchange, Alex Wilhelm took a closer look at blank-check offerings for digital asset marketplace Bakkt and personal finance platform SoFi.
To create a detailed analysis of the investor presentations for both offerings, he tried to answer two questions:
- Are special purpose acquisition companies a path to public markets for “potentially promising companies that lacked obvious, near-term growth stories?”
- Given the number of unicorns and the limited number of companies that can IPO at any given time, “maybe SPACS would help close the liquidity gap?”
Flexible VC: A new model for startups targeting profitability
12 ‘flexible VCs’ who operate where equity meets revenue share
Growth-stage startups in search of funding have a new option: “flexible VC” investors.
An amalgam of revenue-based investment and traditional VC, investors who fall into this category let entrepreneurs “access immediate risk capital while preserving exit, growth trajectory and ownership optionality.”
In a comprehensive explainer, fund managers David Teten and Jamie Finney present different investment structures so founders can get a clear sense of how flexible VC compares to other venture capital models. In a follow-up post, they share a list of a dozen active investors who offer funding via these nontraditional routes.
These 5 VCs have high hopes for cannabis in 2021
For some consumers, “cannabis has always been essential,” writes Matt Burns, but once local governments allowed dispensaries to remain open during the pandemic, it signaled a shift in the regulatory environment and investors took notice.
Matt asked five VCs about where they think the industry is heading in 2021 and what advice they’re offering their portfolio companies:
- Morgan Paxhia, managing director, Poseidon Investment Management
- Emily Paxhia, managing partner, Poseidon Investment Management
- Anthony Coniglio, CEO, NewLake Capital
- Matt Shalhoub, managing partner, Green Acre Capital
- Jerel Registre, managing director, Curio WMBE Fund
How to Collaborate, Manage, and Work with Developers featuring Twilio’s Jeff Lawson
Maybe you think developers are weird beasts that type on a keyboard pushing out code, and then as soon as they become indispensable, they quit. In fact, many founders and CEOs struggle with simply talking to their engineers and communicating their needs. You may ask, “When can we ship this?” and receive an answer that sounds like gibberish to you. The mysterious nature of engineers is also their superpower as they build products that make the seemingly impossible possible.
At his core, Jeff Lawson is a software developer first, and the CEO of Twilio second. He knows both sides of the executive & engineering equation intimately. He gets what goes on in a developer’s brain and the detailed process of building software, but he understands that businesses are motivated to move quickly. In turn, developers need to adapt.
Also, an all-time SaaStr fan-favorite, Jeff Lawson recently chatted with SaaStr CEO Jason Lemkin to discuss his thoughts on collaborating, managing and working with developers. Here are his top pieces of advice.
# 1 You don’t need to be big. The engine of progress is a small team focused on a particular problem that’s dedicated to the customer’s needs. Start small and do it well. Plus, the best talent in the field doesn’t want to be lost in the company. Make things meaningful.
#2 Keep close to the customer and the problem. Twilio’s developers take turns doing regular customer support to know what users are struggling with and to develop an intuitive understanding of what’s needed. You might also include developers on sales calls from time to time — it makes everyone feel heard. Your team must be intimately familiar with the customer’s problems.
#3 Assign problems, not tasks. Often, business teams decide what to build and send a blueprint to the developers. But if a developer doesn’t understand the customer’s dilemma, they won’t be motivated or able to adjust. Include them in the heart of the problem and leverage the breadth and ingenuity of your team. Twilio couldn’t match offers from Google and Apple. Still, they offered their developers problem solving, responsibility, and the awareness that they were vital for the company’s future, not just the back button on Chrome.
#4 Provide executive enthusiasm. The CEO of Dominoes recruited his Head of Technology personally, telling him that his realm was the most critical thing Dominoes was going to do in the next decade. He took the job and recruited an incredible team with the same enthusiasm, building his boss’s vision. A phone call goes a long way.
#5 A sense of ownership solves the small stuff. Instead of “I need you to fix bugs,” lead with, “I need you to own this item that our customers care about and make sure it operates at the level it needs to every day.” And review the different strengths of each member of your team to get the right people in the right seat.
#6 Put the pieces within the puzzle. Help your teams understand where their projects fit in. If your developer builds what they think is a core feature, but it’s just a widget in the top corner, they might have to change things last minute, from fonts to framework.
#7 Let your teams play with different toys. Many software tools require no real upfront investment, and developers can test different tools and see what really hits home. Jeff stresses that “experimentation is the prerequisite to innovation.” The more experiments you run, the more likely your developers are to make the next big thing.
#8 Create a reliable infrastructure. You wouldn’t send your salespeople out with only a notebook. Equip your developers with the right infrastructure and processes to help them write code, ship it, test it, make sure that it’s stable, etc.
#9 Take a point of view. Even if your developers are distributed across locations, make sure they have a working style they can unite around. Not every team needs to work the same way, but the people in them need to have a functional identity. And, ideally, keep within three time zones…
You can get more of Jeff’s wisdom and advice in his new book, “Ask Your Developer: How to Harness the Power of Software Developers and Win in the 21st Century,” available now.
5 Interesting Learnings from Qualtrics at $800m+ in ARR
Qualtrics is one of our favorite SaaS stories at SaaStr. Like Atlassian, Qualtrics bootstrapped all the way to the growth stage, and did it outside of the SF Bay Area. Founder and Chairman Ryan Smith is also one of the most engaging and transparent CEOs out there, and we’ve had 3 amazing SaaStr sessions with him:
And most interestingly … they’ve gotten a second chance to IPO. After selling to SAP for a record $8 Billion at the time in the midst of an IPO roadshow, they then got the opportunity to spin out into a public company after all, at a far higher valuation.
How many of us get a second chance at an IPO? Qualtrics did. I’m almost jealous 🙂
They were at a $723m run-rate in Q3’20, so that should put them soon at $1B in ARR:
Here are 5 Interesting Learnings for us founders and execs:
#1. Only annual contracts, and plenty of professional services (25% of revenue). Qualtrics does have a long tail of 12,000+ customers, but many of its motions are pretty enterprise. 99% of its customers are on annual contracts, and 25% of its revenue is from professional services. 25% of revenue from services may sound high, but it’s a fairly standard ratio in true enterprise software.
Importantly, Qualtrics’ margins remain high so it’s not losing money on its services. Gross margins on services are about 35%. Not the 80%+ in software, but high enough to be profitable and not be a drag on the business. Blended margins are 73%, which is plenty high enough.
#2. Spending more on R&D at scale, not less. Qualtrics as a stand-alone company was spending about 16% of revenue on engineering (i.e., R&D) … and that ballooned to as much as 44% under SAP (re-investing in product) … and now has come down to 31% as the company marches again to being a stand-alone company. There are a lot of mini-lessons here on the ability to invest when you don’t have to worry about being public, etc., but the biggest reminder and take-away is you have to invest heavily in your product forever.
#3. From $35m in revenue in 2012 to $800m in 2021, leveraging 120% NRR. Just think about that for a minute. Let the power of 120% NRR and strong growth compounding over 8 or so years sink in 🙂
#4. About $250,000 revenue per employee. With 3,370 employees and $800m in revenue, Qualtrics does about $250,000 in revenue per employee. This is pretty consistent with other Cloud leaders at scale.
#5. 64 $1M+ Customers, and 1,200 $100k+ Customers (a 1:20 ratio). This is how a lot of us end up looking at scale. Qualtrics grew from 27 $1m customers in 2018 to 64 $1m customers today. Assuming they add up to say $100m ARR total, that means perhaps 15% of their revenue comes from $1m+ deals. But for every $1m customer, they have 20 $100k customers. That 1:20 ratio is pretty interesting and roughly what many vendors that sell to enterprises of different sizes, and in silos, see.
And a few bonus points:
#6. NRR consistent at 122%. We’ve seen some SaaS leaders NRR stay world-class, but decline a bit around $1B in ARR. Not Qualtrics. NRR is basically the same 120%+- for past 3+ years.
#7. Largest customers not growing faster than smaller ones. While Qualtrics has expanded its $1+ customers dramatically, growth in smaller customers actually has kept up nicely. Overall growth rate for “large customers” is 29% Year-over-Year, which with 120%+ NRR, should fuel Qualtrics’ growth for years to come. But smaller customers have kept up, and are still 90% of the total customer base of 12,000:
#8. The merger with SAP did seem to work. While I’m super excited Qualtrics is spinning out into its own public company, the company grew subscriptions an impressive 46% last year under SAP. It’s very hard to be critical of those results the first full year after M&A. Most folks slow down then, e.g. as LinkedIn did for a year or so after the Microsoft acquisition.
#9. No customer concentration, even with almost 100 $1m deals. This is interesting as we’ve seen a lot of customer concentration in recent SaaS leaders. But even being enterprise, no customer is more than 2% of Qualtrics’ revenue.
Also, while most value statements are pretty generic … I like Qualtrics’ a lot. Take a look here:
And a fun back look at the earlier days at Qualtrics here:
Doing 5, 6 or 7 Figure Deals? Don’t Forget the Services Revenue
25% of revenue from professional services may sound high, but it’s a fairly standard ratio in true enterprise software.
Importantly, Qualtrics’ margins remain high so it’s not losing money on its services. Gross margins on services are about 35%.
— Jason ✨BeKind✨ Lemkin ⚫️ (@jasonlk) January 15, 2021
If you’re doing SaaS for the first time (or even the second), the whole idea of charging for “Services” may seem an anathema. It sure did to me.
- If your product is so easy to use that you barely need sales people, why in the world would you need to charge for implementation? For support? For training and engagement?
- And isn’t it a bit unseemly to charge for services? Doesn’t it sort of say your product is Old School? SAP-level clunky?
- And isn’t services revenue a friction-full waste of time anyway? I mean, it’s not recurring. It’s not true ARR. Does it even count? I’m a SaaS company.
Maybe. Maybe for the 15% of the world that is like you and me, charging for services doesn’t make any sense, perhaps even anti-sense.
Turns out though, that in the vast majority of six-figure contracts, virtually every seven-figure contract, and quite a few five-figure contracts … there’s always a services component.
And it almost always seems to average out to 15-20% of the ACV.
I remember the first time I experienced this confusion myself, on one our first high-five figure contracts. We had a brutal negotiation over price. And then, at the end, they sent us a Schedule for Services. After getting beat down on pricing on the annual contract price … the Schedule for Services they sent us (without me even asking) guaranteed us another $20k a year in services, with $250 an hour as the assumed price for the services.
I didn’t fully understand what was going on here until I became a VP in a Fortune 500 tech company.
But the answer, it turns out, is simple once you get it.
First, in medium and larger customers, there’s always change management to deal with when bringing in a new vendor. And they not only understand there’s a cost associated with that (soft even more than hard) … your buyer wants to do the least amount of change management herself as possible. If you can do the training for her for a few bucks and saves her a ton of time … that’s an amazing deal.
Second, in medium and larger customers, they often have no one to do the implementation work themselves. So even if you weren’t saving your customer theoretical money by helping with implementation, roll-out, support etc. … they probably have no one to do this internally anyway. You’re going to be doing some, a lot, or all of this for them. They are OK paying for this, in the enterprise at least.
And most importantly … it’s how business is done. And — budgeted. When most larger companies enter a new vendor into their ERP system, they typically add an additional budget item or two along with the core contract price. One additional line item for service and implementation, in most cases. And in some cases, an additional budget for other add-ons necessary to make the implementation a success (e.g., an EchoSign on top of Salesforce). Both of these are often line-item budgeted at 15-20% of the core contract value for the product.
So net net …
- You probably can’t charge another 15-20% for services and implementation and training for a $99 a month product. Well, maybe you could, but it’s probably unprofitable and not worth it.
- But, as soon as the sale gets into the five figures, considering adding 15-20% for Services. You’ll probably get it.
- And plan for charging, and delivering, additional services revenue in mid-five figure and larger deals. The customers are happy to pay, and in fact, will expect it.
And if you don’t charge … you’re just leaving money on the table. You’ll have to do the work anyway. You may send negative signaling that you aren’t “enterprise” enough, that you aren’t a serious enough vendor.
And importantly, this extra services revenue still “counts” as recurring revenue if it’s < 25% or so of your revenues. I don’t mean that literally (it doesn’t recur), but what I mean is that Wall Street and VCs and acquirers and everyone will still consider you a 100% SaaS company if <= 25% of your revenues are nonrecurring. And you’ll get the same SaaS ARR multiple on those extra services revenues.
Same multiple. No extra work. 10-25% more revenue.
Don’t leave the services revenue on the table.
This is really true. We tend to disregard service revenues like 2nd class. But well designed services speed up adoption, remove fear to change, lock in customers and provide customer insights to better design the product. Qualtrics (below by @jasonlk ) and Carto are good examples https://t.co/RJATL2EHot
— Aquilino Peña (@Aquilino) January 15, 2021
(note: an updated SaaStr Classic post)
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