MicroAngel acquires Postcode Shipping, a profitable SaaS producing $200k ARR
An exclusive look into a six-digit micro-acquisition
I’m really excited to announce that MicroAngel has completed the acquisition of Postcode Shipping, the most sophisticated shipping rates solution available on the Shopify App Store.
They say you make your luck, and I suppose that is an accurate depiction of my journey acquiring Micro-SaaS products so far. It’s certainly been a few months in the making up to this point.
Back in February, I acquired an APAC darling, Xero app of the Year finalist Reconcile.ly, a Shopify app used by hundreds of Australia- and New Zealand-based merchants who rely on Xero for their accounting needs.
I hadn’t considered that my focus for MicroAngel Fund I would end up being concentrated across the APAC region, yet here we are, and I must say I’m super stoked about it mate!
There are so many advantages to working with merchants in that region. As I’m sure you’ll agree, my commonwealth counterparts have proven to be incredible problem solvers as far as Shopify apps go.
In many ways, Postcode Shipping represents the purest illustration of the power Shopify puts into the hands of merchants across the globe.
And that’s exactly why I moved to acquire it.
Let’s dive in!
ARR: $157.3k ARR claimed, $198.9K ARR actual as of Aug 1
Profit: $51K NP claimed/$123K NP SDE, $192.4K SDE as of Aug 1
TTM Revenue: $114,770
TTM Profit: $68,828 (60%)
30-day Revenue: $13,100
30-day Profit: $11,360 (86%)
Asking Multiple: 11.7x claimed profit
Closing Price: $425,000 + 7% liquidation participation
ARPU: $10.00 → $12.50 as of Aug 1 2021
LTV: $217 → $271 as of Aug 1 2021(21+ months)
User Churn: 4.4% per month
Revenue Growth: 5-9% per month
Revenue Churn: 5.7% per month
Expansion Rate: N/A
Net Growth Rate: 1% to 5% per month
Monthly MRR Growth T6M: +$500/mo
Postcode Shipping helps you take control over your Shopify store’s shipping rates based on customers’ locations, the contents of their cart and so much more.
It allows merchants to set up sophisticated table rates.
It’s designed for merchants whose shipping needs are complex and need to differ based on the geographic location of their customers as well the nature of the purchases their customers make.
At the heart of the app are two systems that power rate quoting. One is a flexible postcode matching algorithm that allows merchants to target postcode using a variety of rule types.
The other is a rate computation and rule system that enables merchants to set up rates that respond to a variety of variables including cart contents.
Why does it need to exist?
Shopify’s native shipping rate functionality is a notorious lynchpin for merchants.
It only offers flat rates, which sacrifices the flexibility that ecommerce brands need when it comes to selling both locally and globally.
For example, a London-based merchant who sells to an Irish customer is forced to charge a flat rate for the UK as a whole, despite the cost of sending an item to a London-based customer being very different than that of shipping across a body of water to Ireland.
Then, there’s the logistics and cost variance implied in shipping products of various sizes. Shipping mountain bikes is very different — and much more expensive — than shipping shirts.
But the native shipping rates offered by Shopify are flat and do not offer enough flexibility to operate a highly efficient and adaptable ecommerce business.
When I initially discovered the product, I didn’t quite get how important of a role it played within both the conversion event as well as more broadly within the Shopify ecosystem.
Everyone I spoke to about this said shipping is fucking hard. And it really opened my eyes to the Why behind Shopify’s dedication towards its partner ecosystem.
Shopify really wants to focus on its core business and relies just as intently on its partners to cover the gaps in support of that core business.
Where Shopify is concerned with creating the most efficient and scalable headless ecommerce infrastructure, its aim is to help you sell more — shipping is an entirely different part of the workflow, which is where partners come in handy, whether from a workflow or integration perspective.
In this case, Postcode Shipping represents some of the most fundamental ecommerce machinery required to operate a business on the world’s most popular ecommerce platform, and in doing so earns amazing loyalty from customers that have come to rely on the app to deliver and scale with them.
In short, it’s business-critical ecommerce technology, and the metrics of the app illustrate this.
Both from the perspective of the fund as well as more broadly, I’m very excited to work on the type of improvements that will have a big impact on this product.
And perhaps most importantly, this acquisition does two things:
I’ve reached my Buying goal of $15k MRR
I’ve also reached my Selling goal of $23k MRR
In other words, the portfolio’s value granted a roll-up would represent the ultimate goal of Fund 1, which is to return at least $1m from selling the products.
That means it’s time for champagne and also time to move the goal posts. Because I have zero intention to sell either Reconcilely nor Postcode Shipping for the foreseeable future.
As I chart the expected progress of the portfolio at its current pace, I’m posting a valuation in February 2023 of nearly $2m.
That means I’m going to keep on the same 18 month timeline, but give myself the very real option of sticking to the current fund, and perhaps leverage the equity currently available in the portfolio to secure some debt and acquire a third product.
Since I don’t need the additional income provided by the product, I’m going to reroute it towards a Partner-level hire that can join the MicroAngel journey (even on a part-time basis) and help me take it to the next level.
As for Postcode Shipping, despite not having any intention to sell it off anytime soon, it’s still important to ensure it will produce as expected in the fund timeline, which at this point is an expected 18 month journey for this product.
In that scope, the expected returns for Postcode Shipping are extremely healthy once again thanks to a very favourable buying multiple at the onset, and the immediate liquidity arbitrage created as a result of that.
Because I’ve aligned the seller to benefit from the eventual sale of Postcode Shipping, they too are benefiting from the arbitrage.
Though they may sacrifice a small bit at today’s valuation, the benefits implied by
an increased valuation 18 months from now (and the subsequent increase in value they’ll be able to get without working for it); and
the ability to use money, time and energy elsewhere while still benefiting from the project.
Fundamentals & Potential
As per usual, I started my analysis of Postcode Shipping by taking in what the product is, how it delivers value, how well it captures value in return, and the general reaction of the market vis-a-vis the solution that they have been offered to their challenge.
The app enjoys awesome ranking within the framework of Shopify’s new App Store categories. I will aim to reach a spot in Page 1 ASAP!
In general, I found that the app was successful in delivering on its promise to simplify any complex combination of shipping rules based on the size of the products and/or the postal code of the recipient.
I also found long-standing customers expressing their satisfaction of the way support is delivered, which is attributable to the priority given to the success of customers using the platform, a staple of product-led growth that I intend to double-down on.
This strength has carried the app to the threshold of 100 5-star reviews and beyond, which again is something to not only persist but double-down on.
With an average customer lifetime of nearly 2 years and an app history spanning more than 7 years, I found in Postcode Shipping an exception to the rule on the App Store, which seems to define a natural churn rate between 7% and 10% bearing in mind both voluntary (uninstalls) and involuntary churn (stores closing, dunning).
Instead, Postcode Shipping posts churn rates in the 3% to 6% range all things considered, which has a dramatic impact on its ability to capture revenue for longer periods of time.
The product is in excellent condition from a functionality perspective, but the huge emphasis on functionality was at the cost of UX, which hasn’t followed as quickly.
There are many improvements that can be made to accelerate the process of creating and maintaining rules for shipping zones, rates, and products.
From there, the sky is the limit where it comes to innovation. Analytics, automation and promotional features can help Postcode Shipping surpass itself beyond its scope to offer new tools that would elevate the ARPU the app can capture.
As I constructed the general list of improvements I’d like to perform, it occurred to me that most of the work is through and through growth marketing and experimentation to improve core KPIs.
That work would create the uplift needed in some core metrics to open the door for a variety of marketing activities knowing the machine would be as well-oiled as it could be from the mid-funnel down.
Improvements include but are not limited to:
Implementing a behavioural analytics stack with Segment+Amplitude/Mixpanel
Getting a strong understanding of what drives the longest-retaining users and/or best converting users
Internationalization (i18n) and translating the app and listings to increase acquisition
Introducing an app listing promotional video — both a bootstrapped version and an eventual production-quality version
Implementing a guided onboarding experience to more efficiently move customers towards a successful activation
Setting up a blog / Academy / course that systemizes how to get started creating zones, managing shipping rules and answering to the unique shipping challenges that emerge out of omnichannel ecommerce
Creating and implementing a programmatic SEO project that accurately answers search intent through the creation of hundreds of pages that rank well for a repeatable pattern of search queries
Introducing a Shipping Analytics feature to understand where your shipping demand comes from and when is it happening
Implementing pricing changes alongside new feature releases and introduce new plans that enable customer expansion beyond the current ARPU
Conducting app store optimization and concentrating efforts towards review acquisition and ranking improvements
Testing paid and earned media in the APAC markets
In general, because the product is so technically sound and well-tested, the core functionality can be left to do what it does best, and additional value-adds can be created to support a product-led growth strategy beyond the current instrumentation.
The knowledge base is a marvel and likely only improvable with video tutorials which can have a big impact.
Where a product with depth has huge value, a product with depth that contains sensible defaults and enforces best practices for the less technically inclined will quickly become indispensable.
I point to Klaviyo as an example of the demystification of sophisticated email marketing through the productization and templating of proven email marketing playbooks that would otherwise take a lot of time (your own or a consultant’s) to produce.
It is a net acceleration towards high-powered operations for merchants that they would otherwise would have no business having access to.
That’s the level of power I described earlier represented by Shopify’s role in arming the rebels.
It literally arms them to compete against an Amazonian army that was previously believed to represent the only pinnacle of ecommerce innovation.
To gain access to such powerful shipping instrumentation technology for just $20 per month, and to be able to plug it into your existing ecommerce stack with just a few clicks while having access to live support from a team dedicated to helping you solve the specific shipping challenges that you might run into…
There’s no wonder Shopify is taking over ecommerce.
It completely levels the playing field to a speed that answers the immediacy of today’s market demands in a way that empowers independant merchants like never before.
If something goes wrong, merchants can rely on the very developers of the solutions they rely on in their stores to deliver value to their customers. It’s the next level.
I’m really excited to persist and augment the role of Postcode Shipping within that great ecosystem through the introduction of new tools and technologies to further empower merchants to do ecommerce their way.
Revenue vs. 12 months ago: +49.8%
Revenue vs. 6 months ago: +15%
Revenue vs. 3 months ago: +6%
Revenue vs. 2 months ago: +4%
Revenue vs. 1 month ago: +25% (thank you Shopify!)
Risks & Opportunities
risk of losing marketing share to another incumbent
risk of revenue plateauing considering logo churn if the expansion rate is not introduced soon
risk of ranking and/or ad unit economics not following through as revenues scale or post-acquisition
risk of location-based shipping not being simple and becoming too technically challenging for me to maintain/improve
opportunity to double-down on reviews and kickoff marketing
opportunity to start buying installs profitably from day 1
opportunity to expand from Australia + New Zealand to North America with a Shipping Analytics product line
opportunity to seriously decrease churn and increase growth rate by introducing onboarding improvements & templating
opportunity to decrease net churn further by creating new pricing plans that existing customers can upgrade to for additional functionality
opportunity to reinvest leftover MRR uniquely/creatively
✅ Interest/expertise in the nature of the product
✅ Is the app history strong
✅ Is the tech stack manageable
✅ Is the support burden low
✅ Does the app have many (good) reviews
✅ Can this be a buy-and-hold
✅ Can this be a buy-and-grow
✅ Can I close a deal under a 3x multiple
✅ Is the potential cash on cash return 30% or greater
✅ Is it default alive
✅ Is it meaningful revenue
✅ Is churn under control (20% is just too much)
✅ Is technical debt under control
✅ Any feature/integration that could make MRR pop (Secret)
✅ Is net negative churn possible
✅ Is app ranking stable
✅ Is the churn rate acceptable
✅ Does it have an expansion path
✅ Does the expected monthly MRR growth match fund requirement
✅ Is the trial to paid conversion rate healthy
❌ Is the ARPU fairly strong (>$15) for Shopify
❌ Is the expansion rate healthy/cancelling out churn
❔ Is the visit to install conversion rate healthy
❔ Is the the install to trial conversion rate healthy
Total score: 20/24 (83%)
I met the seller on Facebook (of all places) and we quickly hit it off.
They were looking to transact privately with someone who would actually take on the mantle of improving the product and taking it to the next level.
We quickly recognized the value of sticking together to advance the current state of shipping technology for Shopify merchants so when I received the interested offer range from the seller, I saw this was a unique opportunity to make a fabulous acquisition for several reasons.
The buying multiple. It is awesome.
The openness of the buyer to stick around as a perpetual advisor and thus being open to a liquidation participation
The liquidation participation would have value because the multiple I am buying at pretty much guarantees a positive return
This is an established product that can benefit from the things I do best
I can both reach and surpass my MRR goal for fund 1, creating a unique opportunity to accelerate my plans and test bringing on a teammate at MicroAngel who could help accelerate the whole thing
I could push a bit more cash to secure the transaction on my side, closing the fund at $574k between both purchases. I went all cash on the transaction.
This rare opportunity paired with a truly awesome seller could have come a little earlier, but in hindsight, nearly every other deal that fell through before lacked many of the unique aspects listed above.
That is both luck and/or persistence, depending on how you see things. I choose the latter.
The future is very bright for Postcode Shipping:
Onboarding someone amazing, a new microangel is born!
We hope to chronicle the journey more religiously
Improve the product UX and introduce some great new features
Adjust pricing upwards and downwards, consider a free plan
Lay the foundation to discover the most appropriate channel to systematically grow the top of the funnel and feed postcode shipping’s future growth
Looking forward to sharing all of that really soon.
See you around the state of the fund!
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MicroAcquire, Arni Westh, John Speed, Henry Armistread & the many other silent sponsors.
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At the time of first conversation, the business MRR was heading to close the month at approximately $13k, but Shopify’s newest rules about removing commissions for developers producing under $1m per year come into effect on August 1st, and represent a 25% increase in MRR through the removal of the commission the app has so far paid.
Within the shared P&L, several costs were associated to the business itself, including design, engineering and support resources that could either be reduced or removed entirely by my own involvement.
The ‘Buy & Hold’ number turned out to be quite profitable, though the support burden varies from 5-20 tickets per week, with the majority of the year averaging 6-7 weekly.
The main costs here were contractors, support staff and then fixed costs like servers, databases and support infrastructure.
Last month profit demonstrates the previous point #2 by the removal of non-essential costs and the subsequent increase in profitability in the trialing 12 months
This metric could be further improved relative the departure of staff members following the acquisition’s training period.
You’re probably wondering — what does this mean?
The seller invested into an additional developer as well as paid a few thousand in offshore support. These are things I can reasonably do myself, which is a large point of this model.
This enables me to pocket more profit and/or re-invest it myself, but the fundamentals are very different for me than they are for the seller.
The liquidation participation is an amazing way to decrease the upfront offer while creating a larger total outcome for the seller, while also creating a vested interest and alignment between both parties to collaborate towards the continued growth of the project.
If you’re not too greedy and open yourself to this option, it can open many doors. In my case, I recognize that there are buyers out there who could pay 4x-6x to swallow the product into their PE portfolio.
This fundamental truth benefits both the seller and myself, as an ability to create or instrument a higher valuation would benefit us both, thanks to the liquidation participation.
For a seller who wants to exit after several years in a project, it’s nice to know there will be an additional kicker down the line whenever the project you care about exchanges hands.
Kind of like NFT benefits on the product itself.
If you develop for Shopify merchants, i18n gives you the ability to release translated app store listings for at least 7 more languages.
The reason this is significant is because those app stores serve their markets more naturally - Spanish visitors will visit the Spanish app store etc. The net result can often accelerate daily installs by 50%!
Hey Eyal, awesome blog you've got here, I'm from NZ so has been even more interesting to me following along! I recently micro-acquired my first Shopify Saas as well and am working on that in a similar style to you at a smaller scale.
When you refer to pricing up and down, how do you approach/analyse this personally? My Shopify App currently has a single $29.99/month plan, and I'm leaning towards pricing down at free/$4.99 + % commission like you do with Batch (so people don't have as much fear of getting started) and pricing up to $49.99/$59.99 for extra functionality.
Would be interested though if you've got a better system of approaching this!
Congratulations on the acquisition and thanks for the excellent post (and the rest of your blog, worth every penny of the subscription), extremely instructive and inspiring!
One thing I was wondering, does doing these "cross-border" acquisitions (ie. acquiring an APAC product whilst being based in Canada) add any complexity to the acquisition / asset transfer process in your experience?
And on a related note - is there any operational pain points with regards to sales taxes (ie. end customers of the app being based in APAC) or is it all taken care of by shopify?