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Question for this company / anyone who runs similar businesses - is $1MM ARR enough to pay 7 people? I'd be interested to know what they do in EBITDA and how th

Question for this company / anyone who runs similar businesses - is $1MM ARR enough to pay 7 people? I'd be interested to know what they do in EBITDA and how they think about salaries. This is actually a general question I have about start-ups. The economics of having a business that makes $1 - $10mm in revenue and hires 7 - 100ish people is still difficult for me to understand. Yes, you can raise equity or debt because equity / debt holders believe in a certain business model and then use that capital to pay people, but to be a standalone business without VC or bank funding, you need cash flow (not revenue) that can pay engineers market value.

xtrapolate 8y ago
> "Product: Everhour. HQ: Minsk, Belarus"
kumarm 8y ago
Depends on where you are located. If its a US Based company, obviously not enough revenue to sustain 7 employees. The company is based in Belarus where salaries are lower than US: https://blogs.elenasmodels.com/en/average-monthly-salary-in-belarus-1991-2016-statistics/ https://blogs.elenasmodels.com/en/average-monthly-salary-in-...
- beberlei 8y ago
  obviously? Not every employee must be a high paid engineer. And there are certainly non SV based engineers that are totally fine with less than 100k $ per year? Being based in Germany, I calculate around 100k€ revenue per employee myself, maybe a bit more.
  - debacle 8y ago
    It's likely that at least two of the people at this SaaS have put in an average of 60+ hours a week from its inception.
  - PacifyFish 8y ago
    1mm is their revenue. It will be reduced by cost of goods sold, rent/electricity, taxes, payment for services like AWS, etc. before employees are paid.
    - charlesdm 8y ago
      Margins in software businesses are high. All those things combined (especially in Belarus) aren't going to run higher than say 20% of revenue.
      - PacifyFish 8y ago
        Parent comment was disputing the “obviously” claimed for US-based engineers.
    - beberlei 8y ago
      Yes. They are a belarus company, selling to mostly US companies, so probably pay little sales taxes. other taxes are paid on profit, so explicitly after employee salaries are paid. Salaries are usually the largest expense in many IT companies. They don't collect monitoring data or otherwise huge ingest of data from users, their server costs are probably low. Their main channel of acquisition is partners, I believe Basecamp+Asana doen't take money for being on their partners page. Both just link out to the websites of partners without any means of "tracking", so that seems a right assumption. If renting an office is more expensive than one monthly salary for one employee you have got yourself a palace, or you strategically choose the wrong city like SF or NY. 65% of my costs are salaries in my company. Looking at Buffers transparent cost report they are similar. From my experience talking to other business owners it is about the same, sometimes higher. Now depending on what profit margin you are targeting, lets say 20% pre-taxes for a bootstrapped business in growth mode (it is "low" because you are re-investing money into the company by hiring people) that leaves 800.000$ * 70% => 560000$ for salaries. More than enough for 7 people.
      - PacifyFish 8y ago
        You were disputing the “obviously” claimed for US-based engineers. Most of those are based in SF/Seattle/NY. Move the goalposts as you please.
- brianwawok 8y ago
  What? That is plenty to pay 7 employees in the US. Not in SF and not all senior developers.
  - djrogers 8y ago
    No, it’s really not - you’re either forgetting or are unaware of payroll taxes, insurance, etc. not to mention rent, electricity, capital expenses, and every other expense needed to run a business come out of that $1m.
    - brianwawok 8y ago
      No. In fact I run a bootstrapped SaaS business and am able to pay more than 7 employees on 1m. Do you have a source for your claims? My accountant can verify mine. Some of your list is silly. My electricity bill is $25 per month. My rent is $800 per month. I choose a smart place to open a startup, not SF.
- jiveturkey 8y ago
  > obviously not enough revenue to sustain 7 employees. it's completely unknowable. ARR is not enough data.
the_bear 8y ago
Yes, I think $1MM is enough to pay 7 people, although it depends a lot on the specifics. My business makes $2.2MM ARR and has 17 employees (counting the founders). We're profitable, although we try to put about as much money as we can afford back into growth, so we're right around break even. There are a number of factors to consider when thinking about whether this is "enough" money. Location - We're based in St. Louis which has significantly lower cost of living than, say, the Bay Area (we moved from SF for this reason). St. Louis is much more expensive than some other parts of the world. So the amount of revenue a company "needs" is highly dependent on where it's located. Types of employees - More than half of our employees are on the support team, and almost every came in as an entry level employee right out of college. We pay our support people very well (almost as much as the engineers) but it's definitely cheaper to employ a handful of entry-level support people vs. senior engineers. I think it's a common mistake to think that every startup is made up entirely of engineers. Revenue per employee - Right now we're at about $130k ARR per employee, and like I mentioned, that's close to break even. If we keep growing somewhat quickly, we'll bring in enough new entry-level employees at lower salaries to bring the average down. But as our growth slows (which is happening, and happens to everyone eventually), our team becomes more and more senior and so we pay them accordingly. For this reason, I think we'll need to shoot for a higher $/employee. But not much higher I don't think. I bet $200k/employee would cover us long-term. "Maximizing shareholder value" - One of the things that drives most tech companies to make so much money is that their primary goal (regardless of what their mission statement says) is to maximize shareholder value. When you're bootstrapped, you can choose not to do that. I work full-time as a founder/CEO and get paid well (probably about what I'd be making working for someone else, maybe a bit less). If I wanted to become a billionaire, then yeah, this business model wouldn't work. But that doesn't have to be the goal.
- cm2012 8y ago
  I'm genuinely surprised you pay support almost as much as engineers. I guess your support is a competitive advantage in your niche?
  - the_bear 8y ago
    That's part of it, yes. The other part is that we pay engineers roughly market rate for our area, but we pay support significantly above that. Our philosophy is basically that everyone who works here should make a good living regardless of what their job is, so we're going to pay everyone that baseline. Certain employees (like engineers) might make more because the market demands it. To be more specific, we start our support people at $53k/year and guarantee $10k/year raises for their first five years. We start engineers at $71k and guarantee the same $10k raises. So engineers are definitely making more, but in terms of the fully loaded costs to us, they're not that different.
scrollaway 8y ago
I bootstrapped, ran, and left a 3-year-old $1MM ARR SaaS. It's more than enough to pay 7 US engineer salaries if you don't have offices to worry about.

xtrapolate 8y ago

> "Product: Everhour. HQ: Minsk, Belarus"

kumarm 8y ago

Depends on where you are located. If its a US Based company, obviously not enough revenue to sustain 7 employees. The company is based in Belarus where salaries are lower than US: https://blogs.elenasmodels.com/en/average-monthly-salary-in-belarus-1991-2016-statistics/ https://blogs.elenasmodels.com/en/average-monthly-salary-in-...

beberlei 8y ago
obviously? Not every employee must be a high paid engineer. And there are certainly non SV based engineers that are totally fine with less than 100k $ per year? Being based in Germany, I calculate around 100k€ revenue per employee myself, maybe a bit more.
- debacle 8y ago
  It's likely that at least two of the people at this SaaS have put in an average of 60+ hours a week from its inception.
- PacifyFish 8y ago
  1mm is their revenue. It will be reduced by cost of goods sold, rent/electricity, taxes, payment for services like AWS, etc. before employees are paid.
  - charlesdm 8y ago
    Margins in software businesses are high. All those things combined (especially in Belarus) aren't going to run higher than say 20% of revenue.
    - PacifyFish 8y ago
      Parent comment was disputing the “obviously” claimed for US-based engineers.
  - beberlei 8y ago
    Yes. They are a belarus company, selling to mostly US companies, so probably pay little sales taxes. other taxes are paid on profit, so explicitly after employee salaries are paid. Salaries are usually the largest expense in many IT companies. They don't collect monitoring data or otherwise huge ingest of data from users, their server costs are probably low. Their main channel of acquisition is partners, I believe Basecamp+Asana doen't take money for being on their partners page. Both just link out to the websites of partners without any means of "tracking", so that seems a right assumption. If renting an office is more expensive than one monthly salary for one employee you have got yourself a palace, or you strategically choose the wrong city like SF or NY. 65% of my costs are salaries in my company. Looking at Buffers transparent cost report they are similar. From my experience talking to other business owners it is about the same, sometimes higher. Now depending on what profit margin you are targeting, lets say 20% pre-taxes for a bootstrapped business in growth mode (it is "low" because you are re-investing money into the company by hiring people) that leaves 800.000$ * 70% => 560000$ for salaries. More than enough for 7 people.
    - PacifyFish 8y ago
      You were disputing the “obviously” claimed for US-based engineers. Most of those are based in SF/Seattle/NY. Move the goalposts as you please.
brianwawok 8y ago
What? That is plenty to pay 7 employees in the US. Not in SF and not all senior developers.
- djrogers 8y ago
  No, it’s really not - you’re either forgetting or are unaware of payroll taxes, insurance, etc. not to mention rent, electricity, capital expenses, and every other expense needed to run a business come out of that $1m.
  - brianwawok 8y ago
    No. In fact I run a bootstrapped SaaS business and am able to pay more than 7 employees on 1m. Do you have a source for your claims? My accountant can verify mine. Some of your list is silly. My electricity bill is $25 per month. My rent is $800 per month. I choose a smart place to open a startup, not SF.
jiveturkey 8y ago
> obviously not enough revenue to sustain 7 employees. it's completely unknowable. ARR is not enough data.

the_bear 8y ago

Yes, I think $1MM is enough to pay 7 people, although it depends a lot on the specifics. My business makes $2.2MM ARR and has 17 employees (counting the founders). We're profitable, although we try to put about as much money as we can afford back into growth, so we're right around break even. There are a number of factors to consider when thinking about whether this is "enough" money. Location - We're based in St. Louis which has significantly lower cost of living than, say, the Bay Area (we moved from SF for this reason). St. Louis is much more expensive than some other parts of the world. So the amount of revenue a company "needs" is highly dependent on where it's located. Types of employees - More than half of our employees are on the support team, and almost every came in as an entry level employee right out of college. We pay our support people very well (almost as much as the engineers) but it's definitely cheaper to employ a handful of entry-level support people vs. senior engineers. I think it's a common mistake to think that every startup is made up entirely of engineers. Revenue per employee - Right now we're at about $130k ARR per employee, and like I mentioned, that's close to break even. If we keep growing somewhat quickly, we'll bring in enough new entry-level employees at lower salaries to bring the average down. But as our growth slows (which is happening, and happens to everyone eventually), our team becomes more and more senior and so we pay them accordingly. For this reason, I think we'll need to shoot for a higher $/employee. But not much higher I don't think. I bet $200k/employee would cover us long-term. "Maximizing shareholder value" - One of the things that drives most tech companies to make so much money is that their primary goal (regardless of what their mission statement says) is to maximize shareholder value. When you're bootstrapped, you can choose not to do that. I work full-time as a founder/CEO and get paid well (probably about what I'd be making working for someone else, maybe a bit less). If I wanted to become a billionaire, then yeah, this business model wouldn't work. But that doesn't have to be the goal.

cm2012 8y ago
I'm genuinely surprised you pay support almost as much as engineers. I guess your support is a competitive advantage in your niche?
- the_bear 8y ago
  That's part of it, yes. The other part is that we pay engineers roughly market rate for our area, but we pay support significantly above that. Our philosophy is basically that everyone who works here should make a good living regardless of what their job is, so we're going to pay everyone that baseline. Certain employees (like engineers) might make more because the market demands it. To be more specific, we start our support people at $53k/year and guarantee $10k/year raises for their first five years. We start engineers at $71k and guarantee the same $10k raises. So engineers are definitely making more, but in terms of the fully loaded costs to us, they're not that different.

scrollaway 8y ago

I bootstrapped, ran, and left a 3-year-old $1MM ARR SaaS. It's more than enough to pay 7 US engineer salaries if you don't have offices to worry about.