Canva has taken the design world by storm - offering easy-to-use tools for everyone from casual users to global enterprises. With a skyrocketing valuation and millions of loyal users, the platform has redefined graphic design.
In this segment of Business Breakdowns, Jenny Rae Le Roux and Namaan Mian explore Canva’s business model, growth opportunities, and the risks that could shape its future.
But as competition from Adobe, AI-powered tools, and other upstarts continues, can Canva continue its rapid expansion? Or will the design disruptor struggle to maintain its momentum?
Tune in to see what’s next for Canva.
Business Breakdowns drops on the 1st and 3rd Wednesday of each month. Have a company you'd like to see covered? Reach out by sending us an email.
Episode Links
- More Business Breakdowns
- Connect with Namaan and Jenny Rae on LinkedIn
- Build your business acumen through our Black Belt case coaching program
- Unlock top consulting jobs on the Management Consulted Job Board
More On Canva
- Canva.com
- Canva Financial Stats
Transcription:
0:05
Welcome to this episode on Canva.
For those of you who don't know Canva’s, an online design software and print shop really.
And it's a little bit different from competitors like Adobe because it makes money by offering a freemium model, right?
0:21
So there are users that can access basic design features for free on Canva, by the way, it's completely cloud based.
And then there are premium offerings that are available through like a Canva Pro plan or other enterprise type of offerings that you pay for on a monthly or annual basis, right?
0:39
And so these plans offer advanced features, access to a larger library of design elements.
They allow you to collaborate with a team, they offer greater cloud storage.
There's a lot of features that you can pay for as an add on on Canva.
And so one of the other things that I think really sets Canva apart is that they offer a program called Canva Creators.
1:00
So this is where designers can upload their work to the platform and you as a user can pay to utilize a design that somebody else has created.
And so we're going to talk today about Canva, this cloud based design software and really why it's a fantastic company, why it's experienced outsize growth over the last decade.
1:20
What are some of the metrics that we'd be managing inside of the company if we were sitting inside the strategy team or if we were asked to solve a case interview that had to do with Canva.
And so where we're going to start today is we're going to start with some key metrics just to lay the foundation for where the business is at today.
1:36
So Jenny Rae is joining me today.
I'm going to ask you to break down some of those key metrics and just give us a rundown of where Canva's is.
Awesome.
One of the things that we're doing across both the live and also all of the streamed platforms afterwards is just asking what do you use?
1:54
Do you use Canva?
Do you use Adobe?
Do you use other software?
And not just usage.
What we're really interested in is what do you get paid for?
Because we're going to use that as a microcosm of some of the interests that we have.
So if you're joining us live and you could please add that into the chat on the platform that you're joining on, that'll be really interesting for us to know.
2:14
Canva versus Adobe is part of the framing of our conversation today.
So I'm actually going to share a little bit about the data when we're talking about Canva because I think it's important.
It really was birthed because there was a space in the market for creators who were not professionals to create professional looking designs.
2:34
I will not say professional quality because actually one of our insights from Adobe is that these are not the same quality.
They're not the same vector quality, they're not the same editable quality as an Adobe design, but they are very, very close and they're very easy to use.
So after being founded in 2012, Canva really experienced explosive growth during the pandemic.
2:54
And now they're at annual revenue of approximately all these numbers are private.
So we've sourced them to the best of their ability and to what they have shared with us about $2.5 billion.
Their gross profit is unknown, but we expect as Niman's going to share in a minute that it's exceptionally high as a portion of that $2.5 billion.
3:15
They have around 220 million users globally, but that's all users.
What's really important to note is that they have about 22 million paid subscribers.
That's actually a very high percentage in a freemium model, 10% of your total user base as the paid users.
3:33
But that is a very notable number because when we're, we're looking at this versus Adobe, the number of subscribers is, is really closer to on par than the number of actual users.
A big part of the engine of Canva's business is their premium model.
In addition, they have about 4500 employees, which is much, much smaller than Adobe's organization.
3:55
So Namaan, I'll kick it over to you just to talk about what the heck is the business model for Canva, how to, if you, if you wanted to and you know, figure out what they were doing and why.
Can you help us break that down?
Yeah, absolutely.
Well, you can really quite quickly identify a company's business model by looking at its revenue drivers and its cost drivers.
4:12
And so a couple of the revenue drivers for Canva #1 and primarily it's that subscription revenue for the the Pro and the enterprise options on the platform, so you can pay to unlock additional features #2 is they actually monetize their community through this Canva creators program.
4:32
So that means that the burden, the cost burden specifically of developing new designs isn't on Canva internally alone.
They're also distributing that burden across their community and allowing designers to develop templates, allowing designers to create different types of visuals, upload them to the platform, and then take a cut of the revenue whenever somebody decides that that's the kind of design that they would like to use for whatever their use case is.
5:02
And so that's another growing revenue driver for the company.
And on the cost side of the equation, Canva's costs are primarily fixed costs.
And so what I mean by that is they pay for the hosting, they pay for, right, the platform upkeep and maintenance, they pay to make sure that the features that they are offering are accessible and are easy to use, right?
5:29
All the time.
Like there's 99.9% up time, right?
People are able to get their designs, download them, share them, right?
Like their platform upkeep cost.
And so that means that for every user that Canva adds, there is very, very minimal incremental cost to them.
5:45
And so the variable cost side of the business is really that creators program, right?
So like the commission's that they're paying are variable, but that's a very small part of the cost base for Canva.
So when you think about Canva, the way to think about Canva is that their costs are primarily in the fixed cost category.
6:02
And so if your costs are primarily in the fixed cost category and your software as a service company, that means that you're looking to add users as quickly as possible.
You're looking to add as many users as possible because there is not an incremental cost to delivery.
And so in a nutshell, that's Canva's business model.
6:19
With that being said, Jenny Rae, how would you manage the business?
Yeah, Namaan, can you just actually highlight one thing 'cause I think this will be important when we're talking about the metrics.
Can you talk a little bit about how Canva pays its creators?
I think this is incredibly important.
And also on their revenue side.
6:35
Is it flat rate or like if I want access to Tool 1B, do I have to pay a direct fee for that?
And I, again, like just comparing this to what people may be more familiar with in something like Adobe.
I think this is a really helpful piece of understanding that part of the business model 'cause that's going to tie directly into some of the metrics.
6:54
Yeah, absolutely.
Canva's flat rate.
So the only differentiation that Canva offers is do you want to subscribe month to month or on an annual basis.
But you cannot single out a particular tool or feature and say, hey, I'll pay an A la carte fee for that tool, right.
So it's a flat fee.
7:10
It's a flat rate again.
What does that mean?
I think #1 it means that like your value proposition is simpler and easier for your customer to understand #2 It means the administrative burden and the technical burden is easier to deliver on.
And then #3 It means that your more popular features are subsidizing your less popular features.
7:27
So there are a lot of reasons for Canva to offer a flat rate.
That's number one.
How do they pay creators?
So what happens is, let's say Jenny Rae, you're a creator and you're.
AI is a creator mod.
I'm not a wonderful designer, but let's imagine.
7:43
So let's say you designed a 2025 kind of like a personal planner type of template, right?
And like people want to get on Canva and they don't want to create their own personal planner.
They can go through Canva's library if they find Jenny Rae’s design And they're like, this fits my use case exactly.
8:01
Then you have worked with Canva to set a price for the download of your template.
Let's say it's $5, right?
And then you would get a fixed percentage of that purchase as Commission for somebody purchasing your template.
So that's the way that they're monetizing, they're helping creators monetize their designs and that's the way that they're monetizing the collective efforts of their community.
8:24
So, one of the things that I just want to talk about when I'm talking about the key metrics is this freemium model of Canva.
It's an incredibly powerful engine.
And it's also a huge cost risk that you're basically subsidizing the free portion of your user base with your paid user base.
8:44
And you also have two different types of customers potentially that you're trying to think about.
So the first thing I want to talk about is just the free customer growth rate.
Canva does have incredibly powerful sharing and incredibly powerful referral programs.
9:01
They're not monetized, but they've just made it very, very easy for somebody to say, hey, I'm using Canva, you should use Canva too.
So their free customer growth rate I think really speaks to the potential inside this market and user adoption that is growing the pie.
9:17
This isn't stealing directly from someone like Adobe.
This is making Jenny Ray, who was never on Adobe because I didn't need Adobe Illustrator because I didn't know how to use any piece of it and I have no, no moment of design in my little pinky.
The free customer growth rate brings me into the fold and it adds to a market that did not formally exist.
9:39
So that's one of the things that I think is really important to know what their free customer growth rate is, because if we're able to keep at least a very similar percentage of that as paid subscribers, that's going to be our direct relationship to those paid subscribers users.
The second piece that I would look at is the cost per Pro customer.
9:58
My expectation is that a pro customer who's paying is likely to use both pro features, which are likely more expensive for me to pay out to creators and more features in general.
So I'm going to want to keep an eye on how much my pro users are actually spending because I've got an A2 sided marketplace that I'm managing inside Canva.
10:19
You have the benefit of not having to really create one thing and how else that you need to present, but on the downside, you've got these hungry creators that are only going to keep creating if you're able to keep it good for them.
So I see some pretty big Cliff risk soon as creators flock to the platform expecting to make the same money that somebody did five years ago when they started on Canva.
10:42
They won't.
There's going to be challenges and that's going to drive up the cost for pro customers as you have these higher volume users inside the pro customer space.
And then just tied to both of those, the percentage of paid versus free overtime, like I mentioned, you're, you're naturally expecting as you see an explosion of free users to have some kind of small degradation, maybe from 12% down to 10%.
11:08
But if you're getting, if you're continually dropping and you have this very large freemium model with a user base that is really against sucking the energy and some of these download fees out of your total user base and you're not able to adequately grow your paid subscribers.
11:24
You're going to have to think about how to lock down the paid subscribers more, lock down more of the free content.
So it's less valuable for the free users to help them migrate up, maybe create all cart options.
But really pay attention to who you're monetizing and who you're not over time, because that could be a pretty substantial business risk, especially from the cost side.
12:54
All right, So you got the benefit of going first in this episode.
So, I'm going to talk about different metrics that you did, even though I have 100% agree with almost everything that you said in terms of what I'd be paying attention to if I was at Canva.
I think the number one thing I have to mention is Adobe, but I have to reiterate it because this is just the nature of the beast when it comes to this kind of business. You have to think about churn, right?
13:17
You, you and, and specifically I'd be thinking about churn inside of my Canva Pro tier.
So this is the primary, from what we can tell, the primary revenue and profit driver for the company and its kind of professional designers and small teams like the one that we have at management consulted that are drawn to this pro plan.
13:36
And so we've already talked about this when we talked about Adobe, but I think it bears repeating.
It is much, much easier and cheaper to work to keep existing customers than it is to acquire new ones.
And so I mentioned these stats when we talked about Adobe.
I want to mention them again just to reiterate that acquiring a new customer can cost up to five times more than retaining an existing one.
13:58
That's number one.
Number two, even a 5% increase in retention can drive up to a 95% increase in profit.
And then #3 you have an almost 4X greater likelihood of selling to an existing customer than you do of selling to a new prospect.
14:15
And so when you think about increasingly monetizing this customer base over time, retention is a key part of that strategy.
One thing I'll mention here about Canva that I noticed as I was exploring the platform again is that their cancellation page is best in class.
14:32
And the reason I say this is a lot of companies pay attention to what their sign up page looks like.
They don't pay a lot of attention to what the cancellation page looks like.
But if you work for or run a SaaS company, you need to go check out Canva's cancellation page.
It's one of the best kinds of user experiences that I've seen in terms of personalization.
14:53
Here's how much you used Canva in the last year.
Are you sure you want to cancel?
Right here are the new features that have been added to Canva here since you subscribed.
Are you sure you want to cancel?
We can talk more about cancellation strategy and the importance of churn on a separate episode, but you can tell that Canva's pay paying attention to churn by how much effort and time they put into the cancellation page, which is not what a lot of people naturally think of in terms of where I should be spending my time if I'm running a platform or a business.
15:24
So go check it out if you're a subscriber and see what they do to try and keep you.
So churn is number one in terms of the metrics I'd be paying attention to.
Number 2 is my week 1 retention rate.
So week 1 retention is the percentage of users who publish a design within one week of signing up.
15:43
And so why do I pay attention to this?
Because it's predictive of longer term retention if I can.
This goes back generates your conversation around like usage, right?
So if I, I don't just want you to sign up for a free account, I want you to publish a design.
And if I can get you to actually take advantage of what you've signed up for, you're going to stick around Secondarily related to Week 1 retention, be paying attention to activation, right?
16:08
And so this is not just publishing a design, but it's like how many people, even on the free tier, like to create something after they sign up, right?
So my goal isn't just to get people in the door.
My goal is to get them to like to explore Narnia once they're through that wardrobe door, right?
16:24
Like getting to Canva's, not enough.
Starting to explore the inside of a Canva's world is really kind of where the magic unlocks for them and where they start to see the potential for conversion to a pro account where they start to see increased retention.
16:39
There are real correlations between week 1 retention and activation and longer term retention.
And then #3 I'd be thinking about enterprise plan growth.
So we talked about when we broke Adobe down like this is kind of more naturally an Adobe Score customer, right?
16:57
This is not Canva's core customer.
But I do think that there is opportunity for growth for Canva inside of the segment specifically for small to medium sized businesses, right.
So enterprise customers are the most lucrative on a per user basis and they are also the stickiest.
17:13
Like there are higher switching costs for enterprises than there are for individual consumers.
And so we've already talked about how Canva is a primarily fixed cost business.
So that means that the higher price point you can charge at the enterprise level is almost all accretive to the bottom line.
17:28
It's almost all margin.
So there are extra features that are available to enterprise plan customers, but they are fairly low cost to deliver.
So growth in this segment has a large effect both on top line and bottom line growth, right.
And then a second order effect of this is that the users that are a part of enterprise plans will start to use Canva in their personal pursuits as well as they become familiar with the platform.
17:53
So you can actually use like the enterprise plans that you offer almost as it, it's getting paid to market to a user base you haven't had access to before.
And so I'd be thinking about growing my revenue specifically in the enterprise segment as well.
That's how I'd be thinking about the business.
18:10
Jenny Rae What are your hot takes for the future of Canva?
I have one and this is from a user experience perspective.
So thinking about the business portion of this, I think we could probably get a little bit more advanced with it.
I'll give a quick example from my personal life.
18:27
I run a winery Namaan.
By the way, one of the key metrics of our winery is this person's second visit.
How quickly can we get them to return a second time?
Because we're more likely to have long term customer retention in our wine club if we're able to get them back maybe for another event or for an A member's dinner or something like that.
18:46
So, I think that's really, really important.
And I was just thinking about the fact that when I'm running the winery, I'm basically creating a set of marketing tools for my winery on Canva.
And Canva has not prompted me or asked me to either name these in a certain way that would be helpful to other winery users or to upload my own designs onto Canva for later utilization.
19:09
And, and I, I recognize that like this is a very micro case, but thinking about it in the macro, if you have thousands of small businesses, restaurants, right, coffee shops and agencies that are running these kinds of programs, wouldn't it be incredibly powerful to have meshed down packages?
19:33
Because if I had access to a huge amount of winery specific information, right?
Just yesterday I was designing a new club member form.
But if there were 50 club member forms that other people had uploaded because they created them on Canva, because they could monetize them maybe in a very minor way, or maybe they could work off their enterprise fees by trading something there.
19:53
I think that there's opportunity for Canva to use an AI layer to better make recommendations for specific business types, not just specific, Like I'm doing an Instagram post, which is how they've organized now, but I'm trying to build a business in this specific category, and I'm recognizing as I'm using it that there's an opportunity there.
20:15
I love it.
I love it generally.
I think one thing I've got a hot take, but I do want to add one thing to what you shared about Adobe, which what I heard you saying about Adobe in terms of a growth opportunity for them is almost like credentialing designers onboarding them onto a platform and allowing them to kind of sell their wares of their services through Adobe's platform and taking a cut, right.
20:34
I think there's a huge opportunity for Canva to do the same because and not not.
Just the templates, but actually like me.
Need the actual design services.
With bottles, right?
I need somebody to give me a very specific thing.
Yeah, exactly.
It's your small to medium sized businesses that are less likely to have that capability in house or less likely to have a network that can deliver that capability.
20:54
And so I think Canva has a real opportunity to take share from places like Fiverr and from Upwork by credentialing service providers and then also allowing them to almost kind of sell their services and market themselves through the platform.
And I think that within the next probably three years, we'll see that on Canva.
21:12
I think within the next two years, we will see Canva go public.
So Canva is privately held.
It is based in Sydney, Australia.
It's one of the largest privately held tech startups in Australia.
And I think that Canva will go public in 2026.
21:27
I think it will be the biggest IPO of 2026.
And I think that even though it's an Australian based company, it's going to list on the NASDAQ.
And so I'm looking for Canva to be a hot IPO.
As you see a friendlier kind of regime coming to place in terms of monetary policy here in the US and around the world.
21:46
I think you're going to start to see the IPO market start to come back and Canva is going to take advantage.
I love it.
Well, as we wrap up for Canva, I think it's just really helpful for y'all to know that we're kind of flying a little blind here, but that's how a lot of businesses have to do their business intelligence too.
22:03
If you're working inside a space where somebody is not public, you have to extrapolate based on some of the things that they say on reports that they do, on announcements that they make, on presentations that they're talking about, and talking about inside podcasts.
And you have to kind of pull together the story.
But the most powerful way you can gain insights from a business if you're not sure how it works, is to become a customer.
22:23
It's really where Namaan and I, in both our conversations of Adobe and Canva, came through the lens of, hey, why are we a customer?
Why?
Why may in the future we not be a customer?
What would make us a more valuable customer?
So if you're trying to build business acumen, one thing I'd recommend for you is to really think about the business from the leadership perspective, but also think not what do I like about this product or what do I not like?
22:47
But why would I buy it?
How much would I pay for it?
The real analytical tactics that a business is thinking about, those can help provide a tremendous amount of insight.
Thank you to everyone for joining.
We're so grateful for your attention on today's episode.