While Software as a Service (SaaS) has become a dominant way to deliver innovation to market, there are two different approaches for companies that sell SaaS solutions to small businesses (SMBs): horizontal SaaS and vertical SaaS.
In contrast to horizontal SaaS solutions that solve a functional business problem (e.g. customer relationship management, email newsletter software, invoicing software, etc.), vertical SaaS solutions provide a full software stack for a particular industry. These vertical SaaS platforms' approach is to integrate all the tools required to run a business in a specific industry into a single solution that an SMB can get from one single provider.
For example, a restaurant vertical SaaS solution could include menus, online ordering, web presence and websites, payments, customer relationship management information and related functions, into a single integrated solution.
Vertical SaaS solutions have risen to prominence across many industries, including property management (appFolio, RealPage), home services (ServiceTitan, HouseCall Pro), travel (Bokun - a TripAdvisor company, TrekkSoft), auto repair (Kukui, AutoVitals) construction (Procore, Houzz Pro), and many other industries including trucking, health and beauty, retail, and the like.
Investors are realizing that vertical SaaS is the way to go for SaaS companies that want to grow and scale.
In the article “Why I Am Long Vertical SaaS,” investor Brendan Wales from
e.ventures showed that a typical SaaS company might start with the basics for their industry like CRM, workflow, communication and such, and include more breadth to their solution over time, such as websites, HR, finance, payroll, and other functions.
The reason for this vertical expansion is a practical one. Every new useful capability that a vertical SaaS provider adds increases the value of their solution to their customer. In simple terms, this means they can charge more per month.
A more complete solution means the SaaS solution is stickier and can help decrease the likelihood of the SMB churning and going to a competitor. Adding more relevant products, including websites, to the SaaS stack can improve retention of those SMB customers. Vendasta found that “selling an SMB 1 product has a retention rate of only 30% after 2 years. Selling that SMB just 1 more product showed an increased retention rate of nearly 20%, while selling an SMB 4 products shows a retention rate of 80%.”
A really good example mentioned in the Wales article is a vertical SaaS solution for property management called
appFolio. At the time of their IPO, appFolio was able to charge an average of about $5000 per year per account. Several years in, however, after adding many more capabilities to their solution and building out their vertical SaaS stack, they were able to increase that number substantially. Now their average account spends about $13000(!) per year.
In some cases, these “extra” parts of the vertical SaaS solution end up eventually bringing in more revenue than the “original” solution did.
Most small business owners are strapped for time. If they can get more of their solutions from a single provider who knows their industry, the easier it is for them.
Since vertical SaaS providers already have website templates, workflows, processes, and terminology tailored for their industry, their SMB clients (who are often the business owners) don’t need to try to figure out how to customize a “generic” solution for their industry. It’s already done for them.
This is another huge timesaver, and why vertical SaaS solutions are well-suited for industries that serve small businesses.
Another great vertical SaaS example is ServiceTitan, which describes itself as an “all in one” business management software solution for residential plumbing, heating/ventilation/air conditioning, electrical and other home services companies. According to Mucker, the ServiceTitan solution includes:
By pulling all these capabilities into a single solution for their customers, they provide a very compelling solution. Moreso, they increase the chance their customers will be successful, since all of the technical stack components their customers need are already set up to work together.
For small businesses, the website is often the first impression their customers get of their business. If their websites are out of date, not well designed, not mobile-friendly, not modern-looking, not fast, or not tuned for SEO, their prospective customers are likely to bounce and move on to the next option on their list.
Vertical SaaS companies should be including websites into their stack and bundling websites with their offering.
SaaS platforms can help their SMB customers be more successful. Providing those customers with a modern web presence increases the likelihood that those SMB customers will stick with the SaaS provider over time for a number of reasons, including:
Duda is a great complement for SaaS companies looking to partner with a professional website builder to integrate into their solution. The reasons are:
The best experts — companies who have implemented a professional website builder — agree. G2, a ratings and reviews analyst site that ranks software using real customer reviews, ranked the Duda professional website builder as the:
You can read more about how customers reviewed Duda on G2 here.
For SaaS platforms looking for ways to increase their average revenue per account, expanding their offering by adding new capabilities is a logical choice. And for vertical SaaS platforms that sell to SMBs, expanding their offerings by partnering with Duda is a strategy worth exploring.
If you're a vertical SaaS platform provider interested in learning even more about how Duda might fit with your solution, you can
speak with one of our technical experts, or
start a free trial if you want to check it out yourself.
