SaaS 102 #30 Maximizing Efficiency: How Expensify achieve $1M ARR Per FTE!
AfterShip was founded in 2012. For the first six years, we only had a few dozen employees. Even though we’ve grown fast in the past few years, we still only have a team of a few hundred people.
We once had a job candidate who rejected us after finding out how many employees we have at the moment and how many years ago we were founded. There have also been cases where our employees told their friends a few details about our company, and their friends told them they needed to find another job.
When their friends told our employees they needed to leave AfterShip, they said things such as: “Your company has already been in business for 10 years and only has a few hundred staff. The business is developing too slowly, there’s no future in staying there.”
When I thought about these reasons to doubt our company, they didn’t make sense to me.
Does having a lot of employees mean a company is developing well?
Shouldn’t whether a company is good or bad be measured according to the value they create for their customers, the revenue they create, and their ARR per employee? When did we start evaluating companies by how many employees they have?
So in today’s article I’d like to share a new perspective:
Global SaaS companies should place more importance on our ARR per employee rather than just the number of employees. ARR per employee can be calculated as follows:
Annual recurring revenue (ARR) / total number of employees.
In this article I’ll look at Expensify, and how we can learn more about increasing ARR per employee from the example they set.
Expensify: The ultimate ARR per employee case study
Expensify is a SaaS product which provides an expense management system for individuals and businesses.
Expensify was founded in 2008. When they held their initial public offering in 2021, they still only had 140 employees. If you measured their development just by looking at their number of employees and nothing else, you would definitely think that they were growing at a snail’s pace.
But even though Expensify only had 140 people, they also had more than 639,000 paying customers and 140 million USD in annual recurring revenue (ARR). Their ARR per employee was as high as one million USD per year per person.
Looking back at the development history of Expensify, I found that a lot of things that Expensify did matched with ideas I have shared about working with global SaaS products previously. I’ll list these common points between Expensify’s story and my own SaaS philosophy below:
1. Before you really invest in creating a product, first “sell” the product in advance.
When Expensify had just started, the Expensify founder didn’t spend R&D resources on creating a new product. Instead, he shared the idea of an expense management system called “Expensify: The Corporate Card for the Masses” at TechCrunch50. He let the media spread his idea further, and then looked at the feedback he received.
After many people had expressed that they liked the idea, that was when he started to build a team and begin R&D.
By testing product viability in this way, Expensify followed the kind of strategy I recommended in a previous SaaS 102 article: “How to Verify PMF Quickly and at a Low Cost.”
2. When you select markets, first choose relatively mature Western markets. Start with the United States, and then expand from there.
90% of Expensify’s revenue comes from the United States. The next largest sources of revenue for Expensify are the United Kingdom, Canada, and Australia.
AfterShip also started out with the United States as its first market, and then expanded to Europe and Asia-Pacific.
3. Let your product users do your sales for you.
If your product is mostly oriented towards large enterprise customers, then it’s unavoidable that you will have to hire marketing and sales staff.
But for Saas products that can start out by focusing on small and mid-sized customers, such as Expensify, Zoom, and Slack, they can certainly start out with a product-led growth (PLG) strategy.
Expensify first provided a free version to help address the pain points employees at many companies have when claiming expenses. They then let those same employees promote Expensify to their superiors and ask them to purchase it.
This strategy was undoubtedly very successful. 60% of Expensify’s revenue comes from purchases that were the result of bottom-up employee-to-boss recommendations. As well as that, their net dollar retention rate (NDR) for small and mid-sized customers is a lofty 119%.
4. Reduce customer onboarding costs, let customers immediately realize the benefits your product can offer.
A prerequisite to using a product-led growth (PLG) strategy is that you have to reduce your customer’s onboarding costs as much as possible. You need to let your customers spend time using your product, not learning how to use your product. That way, customers will quickly appreciate the value your product can provide.
Expensify is very simple to use. All the user needs to do is take a photo of a receipt and they can immediately appreciate what the software can do for them.
For more information on how to help customers quickly appreciate product benefits, interested readers can read my previous SaaS 102 article: “What Mooncakes and PLG Have in Common.”
Recruitment philosophy for global SaaS
Many people think it’s difficult to reach one million USD in ARR per employee. But actually, several companies in the global SaaS field have already achieved this, for example Mailchimp, and Basecamp (we are big fans of Basecamp at AfterShip).
When AfterShip was being founded, “Rework,” a book by the founders of Basecamp, had a very large influence on us. The sections in the book on recruitment were particularly influential.
Once we understood the recruitment philosophy of Expensify, we found that good global SaaS companies have many similarities in their recruitment philosophy. These similarities are listed below:
1. They recruit talented people from around the world.
From day one, Expensify defined itself as a global company, and not a Silicon Valley company.
There is a benefit to this: when you build a team, you don’t need to limit your recruitment scope to employees in Silicon Valley or San Francisco. Instead, you can recruit outstanding people from around the world.
AfterShip also positioned itself as a globalized company right from day one. At the time of writing, we have offices in the United States, Canada, Spain, India, China, and Singapore. Our team members also come from different regions across the world.
China has many outstanding product R&D technology professionals. That’s why we built our R&D team in China. India has a strong base of professionals specializing in customer support and similar skills, so we set up our customer service team in India. A large number of our marketing and sales team members are in the United States, Europe, or other areas close to our customers.
2. They recruit lifelong learners, not assembly line robots.
When many companies recruit, they place a lot of emphasis on what candidates have done in the past. But at AfterShip, we put more emphasis on each candidate’s curiosity, motivation, and ability to learn.
If a candidate has successful past experience in a related field, that is admittedly an advantage. But if they haven’t, it isn’t a disadvantage at all, as the work that we want to do is also work that very few people have done before.
As long as a candidate has a very strong ability to learn, and has the curiosity and motivation to take the initiative and learn how to do things well, then we are willing to give that candidate an opportunity to see what they can achieve at AfterShip.
For example, many of our company’s most popular articles were written by people with an engineering background. These are people who studied software engineering at university, not language and literature.
Another example of a person excelling in a field they weren’t previously qualified in is our CMO Andrew’s, who led the renovation of our new office. We now have a new office to be proud of. You can see it below:
We hope that our team members can develop into multi-skilled individuals who can resolve all kinds of challenges (of course, they can be particularly good at one skill). We don’t want our team members to be like robots on an assembly line, who can only complete one part of a solution that has already been planned by someone else.
3. They recruit carefully, so ARR per employee remains high.
Just as I wrote at the start of this article, these days, many people make the mistake of thinking how many employees a company has is an important metric to measure how well that company is developing. This misconception can make companies fall into the trap of expanding too quickly.
If they think there are a lot of opportunities in the market, they’ll recruit people to grab market share.
If they think their team is a bit overstretched, they’ll recruit to increase productivity.
Even just because a competitor has received another round of funding, many companies will go out and use their own risk capital to recruit!
International SaaS is a long-term venture that requires a minimum of five to ten years before you can see results.
Before you’ve found a business model that can be profitable and formulated an expansion strategy, the more people you hire, the faster you will go out of business.
Summary
Expensify provides us with the ultimate ARR per employee case study. Their path of company growth also fits with ideas I have shared before about global SaaS:
1. Before you really invest in creating a product, first “sell” the product in advance.
2. When you select markets, first choose relatively mature Western markets. Start with the United States, and then expand from there.
3. Let your product users do your sales for you.
4. Reduce customer onboarding costs, let customers immediately realize the benefits your product can offer.
As well as this, I also recommend the following recruitment strategies for global SaaS:
1. Recruit talented people from around the world.
2. Recruit lifelong learners, not assembly line robots.
3. They recruit carefully, so ARR per employee stays high.
I'm Teddy, Co-Founder & CEO of AfterShip, SaaS 102 is a series of articles where I share my experience in SaaS startups.
We are looking for great SaaS sales talent and welcome you to join us at careers.aftership.com.
(Article translated by Joseph O'Neill)