comments 17

Estimating 37signals revenue and general profitability

One of the all-time most popular posts on my blog is my original post where I showed how I modelled the revenue and revenue growth of 37signals. It showed a business that has made quite a bit of money in the past few years; I originally estimated revenue of $3.5million in 2007 and over $5million in 2008.

Well, it’s been nearly a year since I put up that post and based off of feedback I’ve received personally and comments on the post I decided to refine this model. My new estimates are that 37signals had revenue of over $4million in 2007 and over $8million in 2008.

Breaking down 37signals revenue by product

These are my estimates of 2008 revenue, in descending order. (Please read the initial post for more detail on how I created the model.)

  • Basecamp: $4.9million
  • Highrise: $1.9million
  • Backpack: $0.6million
  • Job/Gig Boards: $500k
  • Conferences, workshops, etc: $180k
  • Campfire: $133k
  • The Deck: $60k
  • Getting Real: $45k

Analysis

Basecamp is the 37signals product champion, and a key revenue generator. Highrise seems to be quickly gaining momentum, but facing tougher competition from entrenched CRM products. My figures for Backpack are likely a bit low after their recent multi-user update; I think that sales there have significantly increased. Campfire seems to be a minor product. The ranking of Basecamp/Highrise/Backpack is likely right, as it mirrors how they are promoted in 37signals marketing materials.

The other significant revenue source for them is the Job and Gig Boards, which I estimate to be $500k/year. The rest are fairly minor in the grand scheme of things.

Estimates on 37signals costs

37signals seems to be very generous with their 12 employees. (You can be when you’re generating over $600k in revenue per employee!) I’m guessing that between salary, perks, office space (where appropriate), payroll services, equipment, etc. that they average $150k in costs per person. I’m biasing this guess towards an overestimate, so as to be conservative in estimating profits. This is by far the biggest cost at $1.8million per year.

The other biggest cost they have is in servers/storage/etc. In April, their total costs with Amazon S3 were just $2k/month. Being conservative, I’ll guess they’re at $3k/month now, or ~$30k/year.

I believe they use Rackspace for servers. I can’t find any reliable information on Rackspace prices. But I’m going to guess that 37signals pays $30k/month with Rackspace. (If anyone has better numbers or a baseline for this, please let me know and I’ll update this post!) This is a yearly cost of $360k per year.

Guesstimate of 37signals profit

If 37signals is able to make $8million per year, with costs of just over $2million per year, it is a very good business to be in. If my figures are anywhere near correct, they make $6million in profit per year.

I titled this a guesstimate because there are just too many potential sources of error in this analysis. If any readers have any guidance, please leave a comment below or e-mail me directly.

Do you want to challenge my (revenue) assumptions?

You can download the spreadsheet I used by clicking on the icon below.

spreadsheet.png

Summary

I hope this post is useful to you. Again, if you have any better information or want to challenge my revenue or costs model, please comment below or contact me directly.

While not the biggest business, 37signals does seem to be quite a profitable one.

  • http://Fotki.com Ix

    I think you are off by a lot – check the traffic for Basecamp with the available traffic tools – guessing by comparable sites – 20-30K visitors – based on Flickr, Photobucket, LiveJournal, Xanga and Ning figures – paid users are 1-2% – so, we are talking about $500K there, at best. I hear them say “several million” only in the last two yrs, so, most probably they are at $2M+ range.
    Good analysis though!

  • http://blog.jedchristiansen.com jedc

    I tend to not put a lot of faith in detailed analysis from traffic numbers.
    Measurement is only accurate in a broad sense, and that misses out access
    via API's, too.

    Basecamp sites are actually spread across multiple URL's; did you account
    for that in the traffic analysis?

    Thanks for the feedback!

  • http://www.altgate.com/ fnazeeri

    Awesome post, Jed! Great that you share the workup too. I referenced this post in my one prediction for 2009. Keep up the great blogging and have a great New Year!

  • http://blog.jedchristiansen.com jedc

    Thanks, Furqan. I'm glad it's useful, and thanks for the link.

    Have a great New Year yourself! I look forward to hearing more from & about Viridus.

  • http://www.gominimal.com Eric

    I was trying to calculate the revenue of Fog Creek Software and came across your post. Very impressive stuff! As a developer I enjoyed all the data and logical analysis. My methodology was much different than yours, but I concluded that Fog Creek makes $72million/year. Perhaps you'd like to try you hand at an estimation?

  • http://blog.jedchristiansen.com jedc

    Have they released figures that would provide hints for what their sales
    are? If you could provide any links, I might have a go at it.

  • Helgi Thor

    Hello Jed,
    Love your analysis, it's just the stuff I'd been wondering about. Did you happen to notice this post http://www.37signals.com/svn/posts/1556-happy-b… ? It's got some new numbers from 37 Signals, I was wondering how they match with your prior analysis?

  • http://blog.jedchristiansen.com jedc

    Hi, Helgi.

    I took a quick look, and it looks like it does. The only hard numbers they mentioned were $5k/month of revenue in 6 weeks and 2.8million total projects, both of which are right in line with my model.

    The biggest assumption to get their actual revenue figures is the average revenue per account, which is really an educated guess. But I think I've got a decent handle on their overall customer growth.

    Thanks for thinking of me!

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  • http://www.julian101.com Julian Stone

    Here's two posts I wrote a while ago on a similar track of trying to guess their numbers…
    Well worth a read.

    Does BaseCamp have long term users? or a million tyrekickers?
    http://julian101.com/2008/02/does-basecamp-have

    Do you believe Software Companys’ Hype? I’m unconvinced.
    http://julian101.com/2007/03/do-you-believe-the

  • http://blog.jedchristiansen.com jedc

    Well, if you look at my model it generally assumes that ~95-98% of users just try it and don't use it long-term. But those that do use it long-term are very loyal. My model seems to match up fairly well to most everything they've posted recently.

    They are a very profitable and successful business.

  • Ed

    Great analysis, very informative to those of us who wouldn't know how to go about doing such a thing. One question though: I don't understand the Amazon S3/Rackspace differentiation. Isn't S3 a cloud hosting environment in and of itself. If so, why the need for Rackspace servers?

    -thanks

  • http://blog.jedchristiansen.com jedc

    Amazon S3 is for cloud storage – essentially just hard drives on the internet.

    Rackspace is the actual cloud computing – the servers that do all the processing for the 37signals products.

    Hope that helps. :)

  • Ed

    Great analysis, very informative to those of us who wouldn't know how to go about doing such a thing. One question though: I don't understand the Amazon S3/Rackspace differentiation. Isn't S3 a cloud hosting environment in and of itself. If so, why the need for Rackspace servers?

    -thanks

  • http://blog.jedchristiansen.com jedc

    Amazon S3 is for cloud storage – essentially just hard drives on the internet.

    Rackspace is the actual cloud computing – the servers that do all the processing for the 37signals products.

    Hope that helps. :)