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How Does HubSpot Make Money? The HubSpot Business Model In A Nutshell

HubSpot is a CRM (customer relationship management) solution, providing various levels of its B2B and Enterprise subscription plans. Beyond subscriptions, the company monetizes via professional services. However, these carry a negative marginality as the company uses professional services (in the form of onboarding and implementation) to increase its tools, which help companies leverage digital marketing channels to generate leads.

Origin Story

HubSpot is an American software developer and marketer with a focus on sales, customer service, and inbound marketing.

It was founded in 2006 at MIT by Brian Halligan and Dharmesh Shah. Just four years later, the company reached $15.6 million in revenue and acquired Twitter app store Oneforty. It also progressed from serving small companies to serving larger businesses with as many as 1,000 employees. It soon acquired competitor GroupSharp and debuted on the NYSE in 2014.

In 2017, the company strengthened its product offering by acquiring Kemvi – a service for sales teams incorporating machine learning and artificial intelligence.

HubSpot recently eclipsed 100,000 paying customers with over $1 billion in annual recurring revenue.

Understanding the CRM solution

As HubSpot highlighted in its financials:

At the core of our CRM Platform is our CRM that our customers use which creates a single view of all interactions a prospective or existing customer has with their marketing, sales and customer service teams. The CRM shares data across every application in the CRM Platform, automatically informing more personalized emails, website content, ads, and conversations, and enables more accurate timing cues for our customer’s internal teams. In addition, the CRM Platform was built to easily and seamlessly integrate third party applications to further customize to an individual company’s industry or needs. We designed and built our CRM Platform to serve a broad range of customers globally. Our CRM Platform starts completely free and grows with our customers to meet their needs at different stages in their life-cycles. It supports multiple languages and currencies and offers an array of sophisticated features, including content partitioning at the enterprise level for companies operating in or serving multiple countries.

By 2020, HubSpot counted almost 104k customers, that counted an average $9,582 subscription revenue.

HubSpot revenue generation

HubSpot shows two primary revenue streams: subscriptions (with various B2B to Enterprise) plans and professional services. Subscriptions make up most of the company’s revenues (over $853 million in 2020), while professional services represent a more marginal part of its revenues ($30 million by 2020).

While the revenues grew over the years, the HubSpot business model never turned into profitability. The balance between offered a high-priced B2B subscription, even though coupled (as we’ll see) with onboarding professional services, it hasn’t yet struck a balance for the company’s profitability. The company does spend a good chunk of its revenues on sales and marketing. However, it leverages a lot on stock-based compensations.

It’s important to notice that professional services carry a negative marginality. In short, HubSpot loses money on them. So why does it offer these?

It does so that to further prompt the sales of its subscription services, as professional services help various level of customers to better understand HubSpot’s solutions.

In fact, HubSpot highlights that professional services and other revenue are derived primarily from customer on-boarding and training services. Those on-boarding services usually involve an implementation specialist working directly with the customers to make them understand how to attract leads and convert them into customers through search engine optimization, social media, blogging, and other content.

Indeed, the primary means of revenue generation for HubSpot is the selling of software via paid subscriptions.

Let’s take a look at these subscriptions in more detail.

Marketing Hub

Marketing Hub contains everything a business needs to turn leads into customers. There are three options:

  1. Starter – $50/month or $45/month if paid annually. Features include landing pages, ad management, conversational bots, list segmentation, email marketing, and ad targeting.
  2. Professional – $890/month or $800/month if paid annually for businesses that need to market to at least 2,000 contacts. Extra features include A/B testing, multi-language content, and Salesforce integration.
  3. Enterprise – $3,200/month for enterprises with at least 10,000 marketing contacts. Features unique to this plan include partitioning, user roles, adaptive testing, and predictive lead scoring.

Sales Hub

Sales Hub encompasses HubSpot CRM software, helping teams organize data and close deals.

There are also three options here:

  1. Starter – $50/month or $45/month if paid annually. This option provides simple automation, quotes, calling, live chat, and a reporting dashboard.
  2. Professional – $500/month or $450/month if paid annually. Extra features include sales analytics, custom reporting and forecasting, 1:1 video creation, calculated properties, and eSignatures.
  3. Enterprise – $1,200/month for at least 10 paid users. Hierarchical teams, advanced permissions, playbooks, and call transcription are all Enterprise-level features.

Service Hub

Service Hub is a customer service solution, helping businesses turn their customers into fans.

There are three different plans under this hub:

  1. Starter – $50/month or $45/month paid annually and including features such as conversational bots, team email, canned snippets, and rep productivity reports.
  2. Professional – $400/month or $360/month paid annually. Teams selecting this plan can utilize ticket status and routing, video hosting, and surveys focused on NPS, customer experience, and customer support.
  3. Enterprise – $1,200/month for at least 10 paid users. Enterprise features include customer objects, calculated properties, field-level permissions, and webhooks.

CMS Hub

For those wishing to build or scale an optimized website, HubSpot also makes money via two plans:

  1. Professional – $300/month or $270/month if paid annually. These plans are feature-rich and include a drag-and-drop editor, SEO optimization, and a contact attribution report builder. Uptime of 99.99% and 24/7 security monitoring is also provided
  2. Enterprise – $900/month for extra features including serverless functions, memberships, custom CDN integration, code alerts, and an additional brand domain.

Onboarding and professional services

To help businesses hit the ground running, HubSpot also offers a range of support services. These include:

  • Onboarding – providing technical advice for each of the Hub plans mentioned above. There are also specific onboarding services for partners and start-ups. Prices are based on the plan chosen from a specific Hub.
  • Professional services – encompassing inbound consulting, technical consulting, migration services, and classroom training. Prices are based on the length and nature of the training provided.

Key takeaways

  • HubSpot is a software marketer and developer platform. It was founded in 2006 at MIT by Brian Halligan and Dharmesh Shah.
  • HubSpot makes money by offering a diverse range of subscription plans. Each plan is categorized according to the size of an organization, with options in sales, marketing, customer service, and CMS.
  • HubSpot also charges for various onboarding and professional services to help businesses with product implementation and training.

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Related Business Model Types

Platform Business Model

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A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

Marketplace Business Model

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Network Effects

network-effects
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

B2B2C

b2b2c-business-model
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Freemium

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Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

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