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.

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.