As a fast-growing cloud-based platform for digital signatures, DocuSign has been on the rise. If you’ve had to sign onto a loan agreement or mortgage in the past year, then there’s a good chance that you used DocuSign. This is an application that allows you to electronically sign documents. But how does DocuSign make money?
DocuSign is a digital signature technology company that operates on a freemium SaaS business model. DocuSign makes money by charging fees for its subscription plans based on the number of documents and signatures a customer wishes to process each month.
DocuSign earns revenue by charging the companies and individuals who use its services. Not only does the company provide a secure platform for electronic agreements, but they also make it possible for app developers to integrate these features into their apps.
Business Model Of DocuSign
DocuSign is a San Francisco-based company founded in 2003 that provides eSignature software and services to businesses in every industry.
Using the platform, customers can send documents for signature, collect signatures, store documents, and manage their entire e-signing process.
For businesses, DocuSign offers a range of services that help companies streamline their business processes from end to end. These include tools to facilitate the sales process, including digital contracts, proposals, and estimates, as well as tools for negotiations and payments.
DocuSign grew its customer base by more than 53% in 2020. In the sections below, you’ll find out how the company attracts new users through free services and then encourages subscriptions by flaunting its premium services.
A majority of their revenue comes from the business side of things, particularly large organizations like banks or government entities. They have millions of users, but due to their freemium model not every customer pays for their service.
Cybersecurity is also a hot topic for any company these days. Continue below to learn about how DocuSign is working to ensure that security standards are being met.
Easy-to-Use Remote Processing
DocuSign is mostly known for its electronic signing service, which allows customers to sign documents, such as loan agreements, from any location with an internet connection.
Here’s how it works:
- Subscribers upload a PDF, Word, or another document format to the DocuSign app.
- After a document is uploaded, you enter the name and email info of the client(s) you want to sign the document.
- An email with a link to the email is sent to the signee’s inbox.
- The client can then electronically sign the document without having to visit an office.
Are eSignatures legal? Yes, electronic signatures are legally binding. Documents are processed on a secure platform that must meet stringent industry standards, such as the encryption of all customer data. Two-factor authentication is also required to ensure that documents do not fall into the wrong hands.
DocuSign is licensed for use in the United States by the Electronic Signatures in Global and National Commerce Act (E-Sign Act), a law passed by Congress in 2000 to facilitate the use of electronic signatures for electronic contracts and other documents.
Freemium Model
DocuSign operates on a freemium model. Customers have access to the most basic feature, which includes being able to electronically sign documents on any device. While on the app, users are made aware of premium features.
You do not need to pay any fees to sign a document that has been sent to you. You are not required to create a DocuSign account unless the document was sent as an email attachment.
However, to unlock premium features, they must upgrade to a subscription. There are currently 4 different tiers of plans, from personal to business pro to enhanced plans.
Not Just For eSignature
DocuSign does much more than just eSignatures. The company offers a variety of other professional services, which contribute to a significant portion of the company’s revenue.
- Contract Lifecycle Management: documents are automatically scanned for errors, suggestions are made, and contracts can be managed via a workflow.
- Payments can be processed through DocuSign, eliminating the need for manual payment methods.
- Guided Forms: shows customers where they need to sign. It essentially turns a paper into an online form, much like the forms you fill out when you make online payments.
- Document Generation
- DocuSign Agreement Cloud
- DocuSign Notary
Cybersecurity: How Safe Is DocuSign?
DocuSign seeks to eliminate the need for you to head to an office to sign a document, which may be legally binding. As such, cyber security is critical. The company must be able to convince its customers that personal information will be kept safe and secure.
A breach in security could be catastrophic. Hackers could obtain bank account numbers. They may scour documents for social security documents. Imagine someone being able to alter a legal document after the fact.
Here’s how DocuSign is working to ensure security:
- Researching cyber security trends and adjusting software appropriately.
- Developing new tools for detecting threats, such as the URL classification system Pescatore.
- Stopping phishing attacks
Integration With Popular Apps
DocuSign also provides an API platform for developers to build tools that integrate with the DocuSign service.
If a program like DocuSign is going to be successful, then it must be easy for users to access. DocuSign can be integrated with the Microsoft Office 365 Suite, Drive, Dropbox, Evernote, and more.
DocuSign and Salesforce recently formed a partnership. This partnership has yielded what DocuSign hopes will become one of its more popular integrations. The Salesforce integration allows teams to collaborate on agreements, build contracts from templates and keep track of payments, all from a single platform.
How Does DocuSign Make Money?
DocuSign earns most of its revenue through subscription services, which give customers access to more features versus a free account. The company also invests in and forms partnerships with other companies in the electronic agreement industry.
DocuSign offers three different types of subscription packages, which target specific industries:
- Individual or Company-wide Accounts
- Services for Real Estate Professionals
- API plans for developers
eSignature Subscription Packages
Four different tiers of subscription services are offered for those who wish to unlock premium services. Some are tailored specifically for home office use, while others extend services to businesses in their entirety.
| Plan | Cost (per month) | Features |
|---|---|---|
| Personal | $10 | Single-use only, 5 documents/month can be sent |
| Standard | $25 | For up to 5 users, no limit on the number of documents that can be sent, teamwork features |
| Business Pro | $40 | More fields on documents, SMS authentication, Collect payments |
| Enhanced Plans | Call for Pricing | All Business Pro features plus APIs, embedded signing, organizational administration, and much more. |
Courtesy: DocuSign
Real Estate Solutions
Similarly, there are four different subscription plans for the real estate industry. As is the case with the personal and business plans, the entry-level plan comes with limitations on how many documents users can send each month.
Subscribers have the option to upgrade packages by paying to have more users added.
- Real Estate Starter: $10/month
- DocuSign For Realtors: $20/month
- Real Estate: $25/month
- Enhanced Real Estate Brokerage Plans
API Access For Developers
Developers can test out DocuSign’s APIs for free if they register for a developer account. Free accounts provide developers with a sneak peek of what DocuSign is capable of. There are many ways for clients to upgrade their plans.
For those unfamiliar with what exactly this all means, API allows customers to integrate electronic signatures and other DocuSign features into their apps. Examples can include apps that you download onto your laptop or mobile device.
- Starter: $50/month
- Intermediate: $300 per user/per month
- Advanced: $480 per user/per month
- Enterprise plans are available for those requiring a much larger volume of envelopes.
Investing In Startups
DocuSign also invests and forms partnerships with startup companies through its DocuSign Ventures program, first launched in October 2021. The sphere of focus is placed on organizations making inroads on new services in the agreement process.
Here are some notable entities that DocuSign has invested in or purchased thus far:
- The LegalTech Fund: an early-stage fund focused on backing companies transforming the world of law.
- Blackboiler, Datagrail, Paxton, and SnapDocs
- Seal Software and Clause: the investment and subsequent purchase of these firms have provided Al-powered contract analytics and smart agreement capabilities.
DocuSign Funding, Valuation & Revenue
An in-depth analysis of the company’s recent financial statements shows whether the company is growing and what its primary challenges are. You are encouraged to dive into the section below where you’ll find out if the company’s business model is successful.
Funding
$536.2 million has been raised over 20 funding rounds. The first round occurred back in 2004, while the latest was during the summer of 2017.
- In 2004, the company raised $4.33 million of capital with the initial funding round.
- In 2006, $27.42 million in the capital was raised.
- In 2017 (the year before DocuSign went public), $310 million in the capital was raised.
Valuation
DocuSign (DOCU) first went public on April 27, 2018. After the initial public offering, the company was valued at $4.41 billion. The company’s current market cap (as of January 7, 2022) is $26.74 billion.
| Date | Price Per Share (USD) |
|---|---|
| IPO (April 27, 2018) | $39.73 |
| January 3, 2020 | $75.56 |
| June 5, 2020 | $139.64 |
| January 8, 2021 | $244.54 |
| Max (September 3, 2021) | $310.05 |
| January 7, 2022 | $135.93 |
Courtesy: Google Finance
Why did DocuSign’s stock plunge in late 2021? DocuSign’s stock plunged in response to its third-quarter earnings report (FY2022). The company previously told investors to expect $585-$597 million in revenue. But the company recorded just $565 million.
The Motley Fool feels that DocuSign’s stock may be a little overpriced at the moment. Assuming that the worst of the pandemic is over, there may be slightly less demand for signature services. Still, the company’s new partnership with Salesforce may lead to global growth.
Revenue
DocuSign’s revenue skyrocketed in 2020, as just about everybody shifted to remote work. With this sudden increase in product use, you would anticipate costs to also increase. If you look at the table below, you can see that this prediction is verified.
| FY2021* | FY2020* | FY2019* | |
|---|---|---|---|
| Total Revenue | 1,381,397 | 918,463 | 700,969 |
| Total Cost | 364,058 | 243,234 | 192,421 |
| Gross Profit | 1,088,989 | 730,737 | 508,548 |
| Total Operating Expenses | 1,262,844 | 924,246 | 934,871 |
| Net Loss | 243,267 | 208,359 | 426,458 |
Courtesy: DocuSign Annual Report, *= Fiscal year ends January 31
Subscription revenue increased by 50% during the fiscal year ended January 31, 2021. Professional services and other revenue also experienced a massive increase, to the tune of 29%.
The company’s leading operating expense is sales and marketing. The largest cost increase from FY2020 to FY2021 was in the category of research & development.
Is DocuSign a profitable company? This is a question that will be answered in full detail in the sections below, with an analysis of the company’s recent financial statements. This is an excellent educational resource for investors, who may consider adding DocuSign to their portfolio.
What makes this company stand out from its competitors is that DocuSign has been able to generate revenue from both the consumer and B2B sectors.
DocuSign is expected to lose money for the next few years but will have turned a profit of US$70m by 2024.
2022 Financial Report
Noticeably absent from the chart above are figures from the FY2022 Annual Report. The FY2022 report, detailing revenue in 2021, will be available shortly after the end of the fiscal year and should be linked on this page.
In the meantime, DocuSign has released financial highlights from the first three-quarters of FY2022:
- 42% increase in revenue year-over-year.
- 28% increase in billings year-over-year.
- A 5% increase in GAAP gross margin and a 3% in Non-GAAP gross margin. This shows that the cost of revenue has decreased in the past fiscal year.
How Many Customers Does DocuSign Have?
As of January 31, 2021, DocuSign claimed more than 890,000 customers worldwide. This doesn’t tell the full story though. Many of these customers are businesses and enterprises, who pay at least $40 per month for the benefits of the Business Pro plan.
Here’s the full breakdown of DocuSign’s customer base, according to the January 2021 report:
- 120,000 commercial and enterprise customers, a gain of more than 50,000 in 12 months.
- Commercial customers are defined as companies having 10+ employees.
- Roughly 87% of customers have free, personal, or standard accounts.
More than 90,000 developers have utilized the API services to integrate and embed DocuSign features into the apps that they have designed. Keep in mind that the Starter plan costs $50 per month and the intermediate and advanced plans cost $300 and $480, respectively.
Does DocuSign Have Any Competitors?
DocuSign does have several formidable competitors, including SignNow, Adobe Sign, HelloSign, Box, Citrix Systems, and much more. At the moment, DocuSign owns just over 60% of the market share.
Companies such as HelloSign offer many of the same services as DocuSign and at similar price range.
One of DocuSign’s leading expenses is advertising. The company currently spends about $100 million per year drawing new customers to the app.
Is DocuSign Profitable?
Although DocuSign is still not profitable after a decade of operation, the company is growing steadily and has many measures in place to ensure long-term profitability. According to industry analysts, DocuSign is expected to lose money for the next few years but will have turned a profit of US$70m by 2024.
Although DocuSign reported a net loss of approximately 243k in FY2021, the company is still profitable from a cash flow perspective. In the past four quarters leading into 2022, the company has reported an operating cash flow of $432.9 million.
In its third-quarter statement, DocuSign also reported a 42% increase in revenue year-over-year. The firm has benefited not just from a pandemic-induced proliferation of remote work. Also, customers have realized that there’s no need to drive to an office halfway across town to sign agreements.
That said, this isn’t uncommon among companies in its industry. If you look at B2B Software Companies, you’ll notice that most B2B companies operate at a net loss or are yet to turn a profit.
Conclusion: How Does DocuSign Make Money
So that’s DocuSign. An interesting business model, a solid combination of infrastructure and software services, and an impressive client base. We hope this article helped you to understand how this giant in the e-signature space makes money, and how it might continue to do so in the future.
As far as we’re concerned, digital electronic signatures are still an emerging technology and there’s no telling how far they could reach in the future. As they gain more traction among business professionals, DocuSign should be at the forefront of adoption and might continue to revolutionize how documents are signed, how contracts are created and implemented, and how corporate business happens in general.
Overall, there are a lot of positives to be said about DocuSign. There’s certainly a place for it in the world of e-signing, and it has proven itself in the market again and again. It is one of the first e-signing companies out there – one that has been around since its founder had the vision to digitize the process of paperwork. However, there is always room for improvement, and we think that DocuSign should take some cues from newer e-signing services.
One thing is certain: e-signature technology is growing fast, and there’s no sign of slowing down.