Insight: SaaS (45) Case Study: Zapier’s Secret (Part 1)
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In the previous article ‘Insight: SaaS (44) PLG — — Relationship between products and non-products’, we talked about PLG topics; today, we’ll research Zapier. I’ll conduct this study from the viewpoint of a SaaS founder. All data comes from the public. There is no investment advice in this post.
Three months ago, I wanted to undertake a SaaS case study, but I was delayed by some obligations. Now, I believe it’s time to conduct a SaaS firm study from the viewpoint of a SaaS founder. I want to choose one of the several SaaS companies that is the most worthwhile to explore. The business must be distinctive in some way, even if it isn’t the most valuable or well-known business.
I read an article about Zapier written by Ning Gao (VC from Hillhouse capital). Friends can read Chinese articles by clicking here. I learned about Zapier for the first time through this article. Zapier raised 1.4M in the Seed Round in 2012, and it announced ‘profitable’ in 2014 and has never accepted any other fundings.
This instance is quite miraculous. SaaS at the growth stage is a large loss cause most of them become profitable after going public, and they require ongoing money to expand. It is incredible that Zapier, which only received 1.4M in funding during the seed round, is still expanding on its own cash flow.
When we compare the ARR and funding received by the majority of SaaS on the market, we may discover:
Many SaaS have inadequate capital efficiencies, and the ARR of certain SaaS is even under 10% of funding. In various interviews (2020), Zapier disclosed that its ARPU had hit $41.7 and that company had more than 3M users. Approximately, the ARR is between $120 million and $160 million, which is 100 times the funding. The picture is created in 2018.
The sweetest position in the sweet spot, which can no longer be characterized as the company’s effective use of SaaS funding, is where Zapier is right now. There is no way Zapier’s ARR could have come from a $1.4M buring. To reach such achievements, Zapier must have a lot of secrets.
Let’s enumerate a few more facts before exploring Zapier’s secrets:
1. It has more than 125k customers (2021)
2. LTV reached $883 (2020)
It can be preliminarily speculated that Zapier is positioned in the SMB-based market. There will be enterprise clients as Zapier is a horizontal tool SaaS, but their ACV won’t be significantly higher than that of SMBs.
Let’s begin exploring Zapier’s secrets, and I’ll analyze Zapier from the standpoint of a SaaS founder.
If you want to learn more about a SaaS company, you should first visit the website’s home page, then navigate to the pricing page, and finally, use the product.
Open Zapier’s homepage:
We can get some really precise use cases, such as the one given above, where a client who works for Marketing is notified on Slack when a new lead is generated by a Facebook ad and then add an email address to Mailchimp. This eliminates numerous repetitious tasks. The homepage for Zapier, in my opinion, delivers value in a very clear and straightforward manner. It’s invalid value delivery, and Zapier doesn’t discuss the numerous in-product definitions or how much “unreal” efficiency is increased.
Take another look at its pricing page:
It can be seen that its pricing model combines usage-based and tiered-based models. Zapier also offers a Freemium strategy. Later, we’ll spend some time to examining how closely Zapier’s products adhere to the price model and Freemium. Let’s try out Zapier’s products first.
Make a modest goal:
When a YouTube channel I follow updates, I want to set up a draft on my Gmail account (I don’t want to transmit it to anyone, HaHa).
The automation process is a Zap in Zapier.
I was able to fulfill my modest aim in just a few easy steps. My Zap was named automatically by Zapier, and the solution was well-optimized for the app I selected. Customers may find it quite simple to recognize a canonical name when multiple Zaps are made.
After a few days of waiting, I found that Zapier worked.
I can currently see my Usage in Zapier, and I know that Task is the number of times my Zap has been used.
Returning to the Pricing page:
We can easily comprehend what Zapier’s usage is. The first is the number of custom Zaps (automation workflows), and the second is the Task which is the total number of uses of all the Zaps been successfully used this month. Which plan the customer chooses is primarily based on this consumption.
First, the usage concept is foremost incredibly simple for clients to comprehend. Second, I believe that charging based on these two Usages is absolutely fair. You must update the plan if you require more automation. You pay more if you use more Zaps. This makes perfect sense.
These requirements must be completed if the SaaS pricing model includes a usage-based model.
- The usage of resources and functions is well-defined, and purchasers can quickly grasp the product’s unit value.
- It is suitable for products that are difficult for customers to develop themselves, and SaaS consumption has a moderate unit price.
- The product with a controllable cost for resource usage.
Zapier is obviously satisfied with the first two requirements; the third one will be discussed in more detail below.
The Usage-based pricing model that Zapier employs has an inherently growing flywheel:
The more reliant on the product, the higher the customer pays, which is why Zapier increases its Lifetime Value (LTV) from $400 to $883.
Zapier’s product features are appropriate for both individuals and large companies. Customers should range from SMB to Enterprise, however, cause it uses a usage-based pricing model, the Enterprise plan’s price will be similar to the Starter plan’s. Due to the fact that usage-based SaaS cannot directly charge big logos with costs when they have not yet used the product. Enterprise clients are wealthy but not gullible.
My initial hypothesis was accurate.
Zapier does not use Free-trail and instead implements the Freemium business model, which is optimal for its products.
My case of Zapier took a few days because my personalized Zap couldn’t take effect right away. I probably wouldn’t have been able to complete the test by the deadline if Zapier had utilized the Free-trail model, and I would have had to leave.
Freemium has a longer customer experience duration than Free-trail and is more suited for Zapier.
Zapier must have more tricks up its sleeve as a SaaS product with a good pricing model and the GTM approach doesn’t always win.
Products from Zapier have a strictly structured, abstract aesthetic.
Wade Foster claims that Zapier is the automation tool that connects apps together. Zap stands for repeated automation in Zapier’s software.
A Zap consists of one listener and n workers.
The listener is the trigger, which is in charge of monitoring the response of the event. The subsequent workers will be executed sequentially if the success condition is monitored.
Following that, App and Event makeup both the listener and the worker. The amount of products that can be connected to Zapier is represented by the app, and the event represents the activity taking place inside the app. The API that those apps’ developers developed is what powers the Event. For instance, in my case, when the YouTube channel is updated, I want to make a craft on my Gmail account. The public API available in Gmail is used to implement the latter craft creation.
All of the apps that Zapier can be used with are developed modules. It has an optional list of Events and the parameters required to execute each Event. Additionally, the connectivity of apps should be restricted and determined by certain circumstances and logic. Some Events in the APP can only be used as a worker to execute, while others can only be used as a listener to trigger.
Since the execution inside the Event is fixed and the connection between the apps is limited, the structure of Zap can be arbitrarily spliced into APPs under the rules; this means that there won’t be any mistakes, and be well-designed. This guarantees that every Zap will work.
Zapier merely needs to increase the number of Apps, the number of Events inside each App, and the invisible link between Apps if he wants to improve the automation scene and address more issues (may have to write some glue code). Since the product is intended to be a strictly structured abstraction, Zapier doesn’t need to be a significant improvement to Zap.
Zapier has been working hard to increase the number of supported apps since they know that a stronger product results from supporting more apps.
Structured abstraction design’s primary benefit is its ability to scale across products.
Because the product’s foundation is so strong at the beginning, it is not necessary to hire many engineers to continuously update the product during later iterations; rather, they only need to create additional Apps that adhere to the established guidelines. The actual work is not challenging; most engineers can perform it repeatedly. This is the product’s scalability, which is crucial to the business’s bottom line.
The product’s scalability involves eliminating function stacking while steadily growing the horizontal scale within a solid mathematical structure. The Zapier Zap has a very stable mathematical structure. Zaps are trees, regardless of how many Apps are attached to them. A zap tree can convey any scenario, no matter how complicated. Because a Zap is a customer’s usage scenario, Zapier can build up some preset Zap templates to aid customers in creating Zap rapidly. The product’s design is exactly in line with how the customer would utilize it.
Zapier’s gross profit margin must be extraordinarily high, which means that the cost of Usage under the Usage-based pricing model must be very low, for the company to be profitable at such a low ACV.
Successful execution of Zap is to execute 1 listener and n workers at a time. The API response from the app side determines how the event in the worker will execute. From a computational standpoint, some of it is handled by Zapier and some of it is handled by the App side. As a result, Zapier’s cost to run a Zap once is relatively minimal, and this cost has now been added to the usage fee that the customer must pay.
Observe the pricing table’s update time section. Update time is how often Zapier checks for new data to start your zap. This represents how frequently the listener is activated to check if Zapier is currently active. The cost to Zapier is very large if this interval is really little, like 1 second. It should be possible to make personalized tweaks to the Zapier indication. It is likely to need a quicker update time for enterprise customers with high unit costs.
Zapier has relatively cheap running costs in addition to low expenditures for adding new products. Zapier can gradually increase the number of Apps, which is more like an assembly-line project and doesn’t call for a sudden burst of creativity.
Zapier develops a large number of integrations of apps every year. Zapier officially launched in June of 2012, offering integrations with 34 apps. Today, Zapier has integrations with over 5,000 apps.
Zapier’s case research will be divided into two parts. The next part ‘Insight: SaaS (46) Case Study: Zapier’s Secret (Part 2)’ is published.
Please send me an email (jasperhanlingyi@gmail.com) if you have any questions or suggestions.
The next article ‘Insight: SaaS (46) Case Study: Zapier’s Secret (Part 2)’ is published. Simply send me some claps and feedback if you enjoyed my article.
