JungleScout is a 4 year old startup that helps Amazon Sellers sell the right products at the right price.
The company is growing over 60% per year with approximately $24M in ARR from 70,000 paying customers.
Nathan recently sat down with founder and CEO Greg Mercer to better understand the history and metrics behind his success.
From Selling Gardening Stool’s to Building Amazon FBA Software
JungleScout started with Greg looking for a single product to sell on Amazon that represented a high demand, low supply opportunity. The first product was a gardening stool.
Since then the business has evolved into developing a software offering that provides everything needed to efficiently run a small business selling on Amazon. Functionality includes product research, supplier identification, keyword research.
Using a Chrome Extension to Drive 210k Weekly Users, $100 Price Point
Greg was very purposeful in highlighting they have 210,000 active weekly users. They started with a Chrome Extension in 2015 for a one time fee of about $100. The majority of customers, 2 out of 3, initially purchased the Chrome extension..
About a year ago they moved to a monthly recurring pricing model which about ⅓ (70,000 users) of paying customers are on. They launched the SaaS product in late 2015, and today have about 60% of the users using both the SaaS and Chrome extension product.
Is the 80% churn rate primarily driven by Chrome Extension or SaaS Platform users?
The answer will materially impacts future financial performance, as SaaS users have a 2X Average Revenue per User (ARPU).
Is outside funding required to scale to $100M?
JungleScout has been bootstrapped since founding and today has 120 employees across three locations including Austin, Vancouver and Shenzhen, China.
When the company was founded, it was more of a life-style business, and self professed by Greg “So I did not have to have a real job”. That philosophy has evolved into a “Go Big or Go Home” philosophy.
In order to “Go Big” Greg is open to raising outside capital, even at a cost of 20-30% dilution. Based upon a quick 2 month payback period, outside capital seems like a good strategy to continue growth.
Is opening an office in Shenzhen a good decision?
Beyond the challenges created by the current U.S. – China Trade war, how does a vendor serving Amazon Sellers support the 35-40% of Amazon sellers that are based in China? JungleScout decided opening an office in China, where the largest target market exists is the right move.
On the surface, moving closer to where the largest potential customer base resides was an easy decision, but as a U.S. software company with no previous experience operating in China, JungleScout will encounter operational challenges and intellectual property risks that could materially impact long term success.
80% Churn and limited Expansion Revenue makes continued growth harder
Mercer highlighted that customer churn is currently around 80% or a little higher, which is in the upper half of the SMB churn range, as can be seen in the below chart from our research:
Expansion revenue is minimal today, but JungleScout shared they were about to release new pricing which makes expansion revenue a larger potential component of total revenue.
Upon additional research after the interview, we see that JungleScout has evolved their entry level pricing from the number of products and/or users to the number of orders which ranges from $39/month for just the Chrome extension and $69/month for the combined SaaS and Chrome extension.
The monthly fee increases up to $419 per month for larger sellers with over 10,000 orders per month. For customers who subscribe annually versus monthly, which Greg said is the majority, sellers receive up to a 40% reduced price.
With a customer mix that is primarily solo entrepreneurs and companies with 1-2 employees, expansion revenue seems like it will continue to be a small component of the revenue mix.
Less than 1% of customers are considered “Enterprise” like, though Greg did mention Nike as a customer.
JungleScout Pays Very Little For Customers, 2 Month Payback Period
The first 10 customers were from Greg’s participation in the Amazon Seller community on Facebook. The day the product was available, he sent a message to about 100 sellers in the Facebook community and 11 signed up. Today he also participates on Reddit, in addition to the multiple Facebook communities for Amazon sellers.
Over 50% of the customers come from organic search, with a payback period of about 2 months. Greg is comfortable in increasing the payback period, due to his CAC:LTV ratio being at almost 5:1 (actually 4.9:1).
When pushed on CAC, Greg highlighted the complexity of his customer base and pricing evolution.
CAC is around the $120 range (2x monthly revenue of $60 for this customer cohort) for SaaS customers and approximately $50-60 (2x monthly revenue for this customer cohort) for Chrome extension customers.
Based upon Greg’s reported customer mix of 60% SaaS/Extension customers and 40% of Chrome Extension only customers, blended CAC is likely in the $90-$100 range.
CAC is based upon the ARPU of $60 per month for SaaS customers and about $25-$30/month for the blended customer base. Based upon 70,000 active customers, this projects to approximately $24M ARR.
Can growth rates of 60-70% be sustained?
With an 80%+ Churn rate, and limited expansion revenue JungleScout will need to acquire 56,000 new customers every 15 months, or 45,000 new customers annually just to stay even. To grow 50% annually would require a total of 67,500 new customers over the next 12 months, which represents about 4% of total active Amazon sellers with products listed for sell.
Using the current 60/40 customer split between SaaS and Chrome Extension customers, this suggests an investment in CAC of $6.5M is required to grow top line by 50% over the next twelve months.
Based upon the strategic decision to open an office in China coupled with the existing churn rates, Greg’s 6-7 hours of sleep tonight and favorite business book “The 4-hour work week” may both need to change over the next 12 months to maintain JungleScout’s current level of success.