5 Interesting Learnings From Avalara at $600,000,000 in ARR

Avalara is a leading public SaaS company we probably should all know more about.  Avalara manages a big problem — tax and related compliance automation.  Its roots are in SMEs sold directly, a market a lot of us attack as well.  It’s in many ways the hardest way to do it (direct sales to SMEs), but like HubSpot, Avalara has made it work well.

And growth is strong.  At $600m in ARR, Avalara is growing 38% year-over-year powering a $13.5B market cap.

Avalara didn’t start off as a rocketship.  Founded in 2004, took 16 years to hit the first $500m in ARR, in 2020.  But then it will add $200m in 2 years to cross $700m ARR shortly.  That’s the power of compounding revenue right there:

5 Interesting Learnings:

#1.  15,580 customers, up 20% year-over-year — or $40,000 per customer per year on average.  NRR is 107%, fairly consistently over the past 4 quarters.  Good but not great for a $40k deal.

#2.  1000 partners are key to their GTM strategy.  And “950 of the partners, Avalara has no competition”.  Like HubSpot and other leaders that sell sophisticated, $10k+ solutions to SMEs, partners are key to implementation.  They earn commissions and are offered dedicated sales, marketing, and training support.  And importantly, while the very largest partners support multiple vendors for tax compliance, the vast majority of small partners just deploy Avalara.  That’s a huge weapon with SMEs that Shopify and HubSpot also deploy to great effect.

#3.  $180,000 revenue per employee.  With 3,351 employees, Avalara is not that leveraged.  We’ve seen this with sales-driven SMB and SME leaders like Xero as well.  If you are selling to SMBs, you have to be very efficient.  Especially if they need a lot of human interaction.  $180k per employee is not a ton of leverage, and requires thoughtful efficiency at scale.

#4 7% of revenues from professional services — and have 48% margins.  Avalara leans on its partners to do some of the heavy lifting pro services usually would do, but they still provide them for larger customers.  They mark the services up about 2x.  They don’t lose money on services, and do them in-house where it makes sense.

#5.  Driving upmarket to cross $1B in ARR, but $100k is a big customer for them.  Avalara is fueling its growth to $1B from pushing into bigger, $100k+ deals, but its core is still SME and it got to hundreds of millions of revenue while remaining SME focused:

And a few bonus learnings:

#6.  Gross annual churn of 4%, NRR of 107%.  It’s great to see an SME leader disclose the combo of gross churn and NRR.

#7.  Long-tail look at how partners drive revenue.  A great look here about how their partners bring in revenue:

#8.  Deal sizes up across all segments — Small, Medium, and Large.  Enterprise is $71k ACV on average, Mid-market is $36k, SMB is $23k, and small customers are $14k ACV.  Deal sizes are all up over the past 24 months outside of the smallest customers.