Executive Summary:
HubSpot creates various (B2B) software products for inbound marketing and sales purposes. These software tools allow their business customers to capture leads, drive sales and educate customers through content.
HubSpot makes money by charging customers for using the premium features of their software tools. These are divided into so-called hubs and tailored towards different parts of the sales cycle. Additionally, HubSpot runs a marketplace in which it offers third-party apps. Lastly, a small portion of its revenue is generated through consulting services and the hosting of events.
Founded in 2006 by two MIT graduates, the company has been able to become the market leader in the field of inbound marketing. As a result, HubSpot went public in 2014. Today, the company employs over 4,000 people that serve roughly 68,000 customers.
What Is Inbound Marketing?
In order for us to understand HubSpot’s business, it is essential to get an idea about the industry it serves.
Inbound marketing is a set of techniques that allow businesses to attract customers via different channels. Rather than outwardly pushing the brand (e.g. through banners or TV ads), inbound marketers try to persuade customers once they enter a platform.
Inbound marketing channels include search engine optimization, content as well as social media marketing or email newsletters.
Benefits of Inbound Marketing include:
- Decreasing over-reliance of one channel by establishing different customer acquisition funnels (e.g. blog, YouTube channel, social media)
- Companies can increase trust with the product as they publish content around the topic and visibly gain expertise in the eye of the customer
- Reaching a targeted audience, for instance by writing content around specific search terms
- Lower cost as companies don’t have to pay for ads
Interestingly enough, HubSpot actually coined the term “Inbound Marketing” back in 2006. The founders even published a book covering the topic in more depth.
How HubSpot Works
HubSpot is a SaaS company that created a set of software tools that allow businesses to attract customers via Inbound Marketing techniques. Their products allow firms to attract visitors, convert new leads, and close interested clients.
HubSpot separated these tools into so-called hubs, namely their Marketing Hub, Sales Hub and Service Hub. Example offerings include:
| Marketing Hub | Sales Hub | Service Hub |
| Creating landing pages | Free calls | Live chatting with customers |
| Automating emails | Scheduling meetings | Chat bots |
| Writing blog posts | Creating email sequences | Reporting tools |
| Keep contact list | Email templates | Knowledge base |
| Manage leads | Tracking customers across sales pipeline | Creating support tickets |
On top of that, HubSpot offers a free CRM solution to manage leads and customers. It allows users to track the status of a deal, give insights into the client’s company or provide a simple reporting dashboard for tracking purposes.
Additionally, customers can opt in to include third-party applications (e.g. Gmail or Jira) through its marketplace platform.
A Short History Of HubSpot
HubSpot was founded in 2006 by Brian Halligan (CEO) and Dharmesh Shah (CTO). To this date, both founders remain in their acting executive roles.
The pair met in 2004 during their MBA at the Massachusetts Institute of Technology (MIT) in Cambridge, which became the company’s headquarters. At that time, customers became increasingly annoyed by the experience of surfing business websites.
These were often clotted with intrusive and annoying ads and pop-ups, causing users to ignore them and businesses to see their customers abandon them.
Before the pair actually developed any peace of software, they tested their idea by creating the HubSpot blog. Once they saw people engaging with their content (and thereby confirming some of the theories they had about Inbound Marketing), the business case for HubSpot was confirmed.
HubSpot initially started out serving small and medium sized businesses, but soon after its launch became successful enough to attract bigger accounts. And a year after the company’s inception, HubSpot was able to make its first acquisition by buying up their competitor GroupSharp.
This success led to the company’s IPO in 2014 and continued business success in the previous years.
How Does HubSpot Make Money?
HubSpot makes money by selling software on a subscription basis. The company’s CRM tool is free of charge and primarily utilized to attract additional customers.
Monetization occurs either through HubSpot’s Hub applications or its app marketplace. Additionally, consulting offers as well as events contribute to the company’s balance sheet.
Let’s dive deeper into each and every monetization stream.
Marketing Hub
The Marketing Hub solution come at either a free package or three different plans (as shown below).
These include Starter, Professional and Enterprise respectively. As outlined above, some of the premium features include:
- A/B testing
- Implementing call to actions (CTAs)
- Smart (machine learning supported) content
.. and many more. In essence, HubSpot’s Marketing Hub allows users to capture leads and convert them into paying customers.
Sales Hub
Similarly to the Marketing Hub, HubSpot offers a software suite for businesses that want to boost their sales team’s performance. This offering is called the Sales Hub.
It again comes at three different price points, ranging from the Starter pack over Professional up to the Enterprise plan.
Features include:
- Sending out quotes to customers
- Live chat with prospective leads and active customers
- Defining user roles to give employees at different stages various permissions
.. and so much more. Users can book either monthly or annual plans.
Service Hub
HubSpot’s Service Hub allows businesses to offer their customers all the necessary support functions they need. Again coming at three different plans, charged on either a monthly or yearly cadence, these plans include some of the following features:
- Sending out (Net Promoter Score) surveys
- Creating FAQ to inform customers
- Conversational bots for chat support
.. and again, loads of more things.
Additional to subscribing to an individual hub, customers have the ability to book them through a so-called Growth Suite. This is a bundle package including multiple hub offerings.
If that is not enough, then customers can also create individual bundles and select only the features they need for their business.
App Marketplace
Next to their hub offerings, customers can also purchase access to third party applications.
Examples of third-party apps include Outlook, Mailchimp or Slack. Like the hub model, customers can choose different packages that ultimately determine the monthly fee.
In most cases, HubSpot will share the revenue with the owner of the third-party app.
Consulting
Similar to tech giants like Microsoft or Salesforce, HubSpot offers consulting services with regards to the software they offer.
In the case of HubSpot, they offer services for onboarding or maximizing the software’s value. Services include:
- Optimizing the customer’s website for SEO purposes
- Constructing engaging lead conversion channels
- Understanding website metrics
- Content strategy
Depending on the services selected, customers can again choose from different packages.
Events
In order to foster exchange and market their tools, HubSpot (or one of their selected partners) hosts a set of different events across the globe.
These events are often tailored around key topics such as how to drive sales or effective ways to comply with privacy regulations.
Interested attendees will pay a fee to visit these events.
HubSpot Revenue, Earnings & Growth
HubSpot’s revenue in Q3 of 2019 was $173.6 million. This represents a 32 percent increase from Q3 2018.
The company accumulated close to $15 million in GAAP losses for the same period. Losses were primarily caused by additional acquisitions and major changes in the software suite.
With a little more than $1 billion in cash reserves, the loss shouldn’t be too much of an alarming sign.
How Many Customers Does HubSpot Have?
In their last financial report for Q3 2019, HubSpot disclosed a total of 68,803 customers. This represented a year-over-year increase of 31 percent.
The average subscription revenue per customer amounts to $9,992.
How Many Employees Does HubSpot Have?
HubSpot does not disclose any official numbers and the number of employees is normally not disclosed in the quarterly financial filing.
According to their LinkedIn, HubSpot has over 4,000 employees spread out across nine offices across the globe.
