By Stuart Lauchlan

February 15, 2024

HubSpot’s 2023 was “a year of experimentation”, but 2024 is going to be all about delivering customer value, according to CEO Yamini Rangan. But that focus will come with price rises in its wake. 

The CRM/marketing firm turned in a loss of of $13.6 million for Q4 on revenue of $581.9 million, up 21% year-on-year. For the full year, the loss was $176.3 million on revenue of $2.17 billion. Rangan said that while the macro-economic climate remains challenging, the focus on growth remains on track: 

Total customers grew 23% to over 205,000 customers globally, driven by nearly 11,000 net customer additions in the quarter, a new record for us. Our customers have high confidence in our ability to help them grow and we are becoming the clear platform of choice for scaling companies…We improved our in-app, onboarding and support to help customers get value faster and our investments to drive retention are beginning to work. These efforts resulted in record net adds that we are pleased with.

Throughout 2023, we saw customers tightening their budgets, deal cycles taking longer and overall scrutiny in the buying process. Though these trends continued in Q4, we saw some buyer urgency at the end of the year, driving sequential improvement in large deals…That said, we're not sounding the all clear just yet, as we continue to see cautious buying and multiple decision makers involved in deals. Overall, we expect this choppy environment to persist.

Multi-hub

In terms of the various hubs offered by the company, Rangan pointed to the stat that 60% of Pro and Enterprise customers are now using two or more hubs, while more customers are starting as multi-hub users:

Customers are simplifying and consolidating on fewer, more effective platforms, and this translated to stable gross retention and more multi-hub wins for HubSpot.

She added: 

Sales Hub was our fastest growing hub in the quarter in terms of new business with 18 of the top 25 wins including Sales Hub. It is becoming a sustainable front door to HubSpot and I'm thrilled with the momentum we are seeing after the relaunch…In addition to relaunching Sales Hub, we enhanced Marketing Hub with more omni-channel features like Instagram reels and introduced more robust insights with customer journey analytics. With Service Hub, we introduced multiple knowledge bases, which was a top customer request and advanced our vision of a modern help-desk. 

But the “big headline in 2023” was - altogether now! - around AI with the launch of HubSpot AI. Rangan talked about customers getting value from AI-powered features, such as call summarization and forecasting: 

We were early with gen AI beta launches and have embedded AI features across our entire platform and hubs so customers can get the power of AI without needing to become AI experts. Reflecting on 2023, we moved fast with AI to drive innovation for our customers. 

Price rises coming 

Coming up next month is the company’s new seat space pricing model, which kicks in on 5 March. This is intended, said Rangan, to make HubSpot offerings easier to buy:

We have always been easy-to-buy and easy-to-use and we are just doubling down to make HubSpot even easier to buy. This change has been probably a couple of years in the making, and we got started with these changes by talking to our customers, to hear from them in terms of where they experience points of friction in the buying journey and where they're seeing value. That's how we got started.

She added:

We want it to be super-easy for customers to get started with HubSpot, so we're removing the seat minimum…what we expect in terms of this change is it will result in more customers starting with HubSpot and higher volume of Starter customers over a period of time.

But the new pricing will also have a sting in the tail - while existing customers will see no change at the time of the shift-over, they will run into price rises of up to five percent when they come round for their next renewal. 

Given the expectation of continued “choppy” market conditions, is a price rise really a good idea right now? Rangan rationalizes the decision as being taken for three reasons: 

First, we want to make it even easier for customers to get started with HubSpot, and therefore we're removing seat minimums for Sales Hub and Service Hub. This will remove friction for customers and will help us accelerate market share gains.

Second, we want to make it easier for customers to upgrade from Starter. We have heard feedback that the price jump from Starter to Pro or Enterprise is high. This is a point of friction as customers look to upgrade. So we're changing the Pro and Enterprise seat pricing for Sales Hub and Service Hub and we are introducing view only seats, core seats for users who want to edit, and specialized seats for users who need specific functionality like sales or service. This change will bridge the gap between Starter and Pro, and drive more Pro Plus adoption and upgrades.

Third, and perhaps most importantly, we're aligning price to the value from our AI-Powered smart CRM. We've invested heavily in our smart CRM over the past few years to make it more customizable, extensible and easier to integrate with. The easiest way for you to think about smart CRM is it's the unified customer record, which enables our customers to have a single view of their customers. Now, customers can continue to view the CRM for free, but will need a core seat to edit it. This expands our ability to monetize beyond core personas to ops, admin finance personas who may need more powerful edit capabilities.

On that last point, she expanded: 

Over the past few years, as we look at where customers are spending the most time and getting value, they will tell you that it is from having a single unified view of the customer. And what we have done with this pricing model change is if you want to view it, you can use the free seat, but if you want to edit anything within that core CRM, you will need to buy a core seat. So, by monetizing that smart CRM, we're aligning the value where customers are getting to our monetization strategy, and it really goes back to our core pricing philosophy. We add value, and then when we know we have added a ton of value, then we align the monetization.

Overall, Rangan predicted:

I think you're going to see more volume, because we have removed the friction, both in terms of Starter and Pro, and then over a period of time the biggest opportunity is really post sales expansion and growth. When we sign more customers, then reps have the capacity to go back and sell more in terms of cross sell opportunities.

When customers start with exactly what they need, then they now will buy more seats as they continue to expand and core seats is a new upgrade lever. So this is a foundational shift that removes friction and provides value and gives us the ability to continue to expand over the next multiple years. So we're really excited about this change.

My take

The new pricing model has already been trialed in Australia and New Zealand and learnings have been taken on board, according to Rangan: 

We have fine-tuned our execution based on customer, partner and sales feedback. For the global launch in March we are hyper focused on enabling our teams and partners to communicate the value of the changes to customers. Overall, I'm really excited about our pricing model evolution. It's going to make HubSpot easier to buy and easier to scale as our product grows, while matching how we monetize the platform based on the value we deliver to customers.

Renewal time for existing customers will be the test point, of course. Rangan argued that the firm is focused on ensuring there are no surprises for its user case as the pricing changes kick in: 

In March, what we're launching is only for new customers. The migration for existing customers to the new model, which means having view-only seats, having core seats, and having specialized seats, that migration will begin mid-2024 and it will go through 2025 in waves. 

The experience for customers should be seamless, she suggested: 

They probably won't even notice that they have been migrated on the back end to support the new deep model. Then at the first renewal after migration, customers can expect up to five percent increase, no more than five percent increase, and that way they have visibility in terms of the level of change that they can expect. We've started doing this as part of our ANZ pilot and we're finding that it's a very seamless kind of motion for existing customers with plenty of time for them to adjust to kind of the new motion.

Time will tell. 

For now, HubSpot ended the year on a high with Wall Street happy with its numbers and prospects.

Onwards!