How does AppFolio make money?

Steven Loeb · August 28, 2015 · Short URL:

AppFolio uses a TranSaaSion, in which is combines a SaaS model with transaction-based pricing

As any presidential candidate will tell you, small businesses are the lifeblood of this country. Yet running one is really hard. There are so many things that they have to do to keep up day-to-day operations that they need business management software to keep up with all of it.

That is where AppFolio comes in.

Founded in 2006, the company provides cloud-based software solutions for SMBs in the property management and legal industries, covering everything from actual management tasks like online rental applications, tenant screenings, owners portals, and utility billing, to accounting tasks, like online payments from renters, payments to owners, property budgeting, and more.  

The company uses what Forbes calls a "TranSaaSion" model to make money. That means it takes a traditional SaaS model, in which software is licensed on a subscription basis, and combines it with a transaction-based pricing.

This is how it was described in the company's S-1 filing with the SEC:

"We employ a business model that produces predictable revenues. We achieve this by charging recurring subscription fees for our core solutions and providing a number of Value+ services that are generally recurring in nature," the company wrote.

"Our business management software solution is a critical element of the day-to-day operations of our customers, leading to lasting customer relationships. We employ success-based pricing for our software solutions with a view to increasing our revenues over time as our customers’ businesses grow and they increasingly adopt Value+ services."

The company charges a flat $1 per unit per month, along with a minimum $200 onboarding fee. That amount covers a slew of services, such as online rent payments, ratio utility billing, check printing, online applications, posting vacancies, RentMatch rental pricing comparison tool, mobile inspections, and customizable online leases, among others. 

AppFolio then supplements the revenue it gets from the SaaS compontent with optional add-on services.

That includes websites that are integrated with AppFolio Property Manager, which costs $50 per month, plus a $1,000 onboarding fee; tenant liability insurance for $9.50 a month, per unit; resident screening, which costs $10 per screen for credit and eviction reports, or $15 a month to also get criminal reports; and access to a 24/7 contact center for $1 per unit per month, with another $200 for onboarding. 

The company went public in June, raising $74 million. 

In the second quarter of this year, AppFolio saw revenue of $18.4 million, up 59% year-over-year. It also increased property manager customers 43% year-over-year to 7,016 and 1.9 million units under management.

It wound up with a net loss of $3.4 million, up from $1.5 million the same quarter the year before. The biggest drain on the company is its cost of revenue, of the amount it had to pay in order to distributing its services, including salaries, incentive-based compensation, benefits, and stock-based compensation, for its our employees, as well as the cost of supporting its operations and platform. In all, that segment cost th company $8.1 million during the quarter. 

Before its IPO, the Santa Barbara-based AppFolio had raised only $30 million in venture capital, The last time it raised money was an $8 million round in 2009 from the Investment Group of Santa Barbara. Other investors include Cisco Systems and BV Capital.

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