Growth Rate (y/y)
Note: Revenue and growth rates estimated as per data from publicly available source.
We estimate that Rippling hit $135M annual recurring revenue in 2022, up 150% from the year before. Rippling’s revenue consists of high-margin subscription fees from HR and IT SaaS, low-margin insurance and benefits revenue, and management fees for Professional Employer Organization (PEO) services. Rippling makes most of its money from subscriptions, with the revenue from insurance and benefits less than 10% of its topline. Rippling’s basic SaaS package is a $35 monthly fee plus $8 per employee per month and includes workforce management platform, employee onboarding and offboarding, payroll, time tracking, and integrations. Other components like benefits and IT SaaS are sold as modular bolt-ons.
Note: Data as per publicly available sources. Vertical axis is on log scale for visual clarity. Size of the bubble indicates valuation.
Rippling has raised $697M from investors like Bedrock Capital, Kleiner Perkins Caufield & Byers, and Sequoia Capital. It was last valued at $11.25B at a valuation to revenue multiple of 208x. This valuation is much higher than other publicly traded or privately held HR tech companies such as Gusto (36.5x), ADP (6.7x), and Paycom (19.8x). The high multiple reflects Rippling’s rapid revenue growth, the high proportion of SaaS revenue in the revenue mix, and the potential to expand into adjacent markets such as identity and access management, endpoint security, business spend management, and e-procurement.
Rippling sells HR, payroll, IT security, and device management SaaS as a subscription to SMB and mid-market companies. Unlike most other SaaS companies with point solutions, Rippling is built as a multi-product company, giving it multiple entry points into a company. For instance, companies that don’t want to use it for device management can use it for payroll, and companies that are happy with their existing payroll can use it for single sign-on and device management. Rippling then cross-sells its other products to these customers through two key value propositions:
- Firstly, Rippling’s bundle is more affordable to a company than paying for each point solution SaaS separately. Every point SaaS company can only spread their R&D and marketing costs across one product, which means a customer is paying a premium, while Rippling spreads these costs across multiple products in its bundle
- Secondly, like Microsoft, its products work better when used as a bundle with common UX, 3rd-party integrations, and analytics.
Rippling has 10+ product lines that are doing over $1M in ARR and plans to launch one new product every quarter for the next 12 months. It expects its new products to reach $1M ARR in 5 to 6 months.
It aims to leverage the middleware to eat into all the heavy administrative load use cases in a company centered on employee data such as procurement, corporate spend management, and communication/collaboration. This approach is similar to how Salesforce started as a CRM, connecting all business systems through customer identity and then layered products on top of it, with the core CRM product now less than half of Salesforce’s revenue.
The employee data in organizations are spread across multiple business systems and needs to be maintained and updated manually when an employee’s status changes, such as they leave, get promoted or someone new joins, creating significant administrative overhead. Rippling solves this by acting as a system of record for employee identities and the single place to make all such changes. Rippling then propagates this to all other apps through its third-party integrations with hundreds of apps.
Rippling uses its middleware as a common infrastructure to build features such as permissions, reporting, approvals, and automation faster than point solutions, which have to develop them from scratch for every new product. The middleware also pulls data from third-party apps, such as Zendesk tickets, GitHub pull requests, and Slack messages, so companies can create workflows and reports within Rippling rather than tinkering with each point solution separately.
Rippling is made up of four components:
- HR SaaS: Consists of payroll, benefits and insurance, time & attendance, talent management, learning and development, and PEO.
- IT SaaS: Includes app management and device management. App management enables app installation, single sign-on, password management, and access control. Device management provides remote/on-prem device setup, security, device onboarding and retrieval, and device ordering, shipping, and storage.
- App exchange: Rippling integrates with hundreds of apps across procurement, design, collaboration, HR, IT & security, and office management categories.
- Middleware: Rippling’s middleware, Unity, sits between the application layer and data layer to provide a common infrastructure of analytics, automation, permissioning, and policies that can be used by all Rippling products and by third-party apps.
Stack of point solutions SaaS companies
Rippling’s key competitors selling to SMBs are Gusto and Justworks. While Rippling is taking a vertically integrated approach to developing apps, Gusto is taking a platform approach where it connects with third-party apps and insurance providers without aiming to build all the features in-house. Justworks is a PEO that sells HR SaaS and insurance plans to SMBs without an option to use the HR SaaS as a standalone product. Rippling’s modular product bundle lets an SMB switch off PEO and still use the HR SaaS tools. Also, Justworks generates 90% of its revenue from low-margin insurance sales, while for Rippling, this is less than 10%. Compared to its peers, Rippling is investing a lot more into building its product with a much higher percentage of engineering employees, which enables it to ship new products and features much faster.
Percentage of workforce in engineering for HR/payroll companies
Rippling started with HR and IT SaaS, but its ambition is to expand to other categories that need heavy lifting, and employee data are a natural fit for Rippling. As Rippling wants to bundle everything in one subscription, one of the ways to think about the bundle expansion is for Rippling to build the features it provides through third-party integrations in-house. Its multi-product approach makes Rippling a candidate to become the Microsoft Office for startups, a business operating system where everyone plugs in for all administrative, communication, and productivity needs rather than firing up separate applications.
Enterprise sales motion
Rippling mainly sells to SMBs and mid-market companies, which can replace existing software with lesser difficulties than enterprises. Once it starts targeting enterprises, moving them to its all-in-one bundle may be challenging. Enterprises will find it difficult to rip out an expense management SaaS or a device management SaaS, part of their core workflow.
Ambition vs. delivery
Many of Rippling’s products are highly ambitious and work in progress rather than 100% finished. Rippling has invested heavily in R&D and will now want to monetize this effort by selling the SaaS to as many customers as possible. However, it needs to deliver on its ambition through customer support, without which it may struggle to maintain its early traction.
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