The Future of Software Solutions

Vertical SaaS is growing and shaping the SaaS market with its capabilities that can meet specific business needs.

Modern businesses, especially large businesses and enterprises, have an overwhelming number of processes and tasks. To optimize them, they use dedicated SaaS software.

However, in the process, they end up using too many of them, which increases complexity and costs.

Vertical SaaS aims to overcome this challenge.

So, if you are a software provider or a business looking for efficient SaaS software, read on. 

What Is Vertical SaaS?

Vertical SaaS is a Software-as-Service (SaaS) solution that focuses on specific industries and enables software providers to offer tailored solutions to industries that can address their unique needs and challenges.

This means if an industry (like healthcare, insurance, automotive, retail, manufacturing, finance, real estate, etc.) leverages this kind of software, it can cater to specific needs while providing better services to its customers.

cryptoshitcompra.com/wp-content/uploads/2023/12/The-Future-of-Software-Solutions.png", "imageCurrentSrc": "", "targetWidth": "800", "targetHeight": "450", "scaleAttr": "", "dialogLabel": "Enlarged image" } } }» data-wp-interactive=»» class=»wp-block-image size-full wp-lightbox-container»>

Different industries can have different and unique requirements and concerns. Here, vertical SaaS is useful as it aims to address those requirements and provides an easy-to-use solution.

Furthermore, the solutions differ from business to business depending upon their concerns. So, if you are a business seeking a solution, involve your experts in sharing the pain points of your industry so that you can get tailored solutions built especially for you with vertical SaaS.

Some examples:

• Automobile manufacturers can use a vertical SaaS solution to manage their supply chains, development of parts, create design-to-manufacture and design-to-assembly drawings, etc. 
• Real estate industries can use vertical SaaS software solutions to manage property data, enhance ROI, and market properties.
• Healthcare industries can use vertical SaaS software to manage patient data, provide online services, and ensure data privacy.

Vertical SaaS vs. Horizontal SaaS

Vertical SaaS	Horizontal SaaS
It doesn’t offer industry-oriented solutions but offers problem-oriented solutions, regardless of industry.	Horizontal SaaS targets a wide range of businesses, industries, or users by fulfilling their needs.
The market size is vast.	It doesn’t offer industry-oriented solutions but offers problem-oriented solutions, regardless of industries.
Growth potential is low.	Growth potential is high.
It offers end-to-end solutions based on specific problems.	It doesn’t offer industry-oriented solutions but offers problem-oriented solutions, regardless of industry.
Since the market is small, competition is low. So, retention of customers can be more.	Since the market is large, competition is high. So, retention of customers can be a challenge.
It focuses on developing strong relationships with customers for marketing and building strategies.	It focuses on attracting more and more customers through its marketing strategies and depends on customers’ feedback.
Managing vertical SaaS is easier with limited requirements.	Managing horizontal SaaS can be a little more complex due to more capabilities.
Vertical SaaS software solutions are more scalable and easily adaptable.	Scaling horizontal SaaS can be difficult since you will need to make bigger changes.

Importance of Vertical SaaS

Although vertical SaaS has a small market, it has a large scope since it provides tailored solutions according to businesses’ specific needs. It offers several benefits, as mentioned below, that let businesses streamline their workflows and maintain better collaboration.  

Industry-Specific Solutions

png", "imageCurrentSrc": "", "targetWidth": "800", "targetHeight": "450", "scaleAttr": "", "dialogLabel": "Enlarged image" } } }» data-wp-interactive=»» class=»wp-block-image size-full wp-lightbox-container»>

Vertical SaaS is beneficial for software providers in providing industry-specific functionality to industries according to their business’ exact needs and problems. It will help them streamline workflows, manage teamwork, address missions, and reduce efforts. 

Since businesses can get tailored solutions based on their problems, they don’t have to pay for unnecessary functionality in your SaaS software, saving your costs and dealing with what’s important.

Scalability

Vertical SaaS is new and has a good scope in the market. It only targets niche or industry-specific and narrow markets. If you face difficulty in managing and scaling your software solutions with horizontal SaaS, you can easily adapt to vertical SaaS and ease your processes.

Less Competition

The competition in the field of vertical SaaS is low as compared to horizontal SaaS. This means it’s easier for startups and small industries to grow quickly by developing industry-specific software and providing it to suitable industries. This way, as a software provider, you can help other businesses enhance their operations and revenue.

Cost-Saving Opportunities

The upfront costs of vertical SaaS are high. Building software solutions based on specific needs requires significant investments and involving experts to understand the pain points of a company to provide tailored solutions.

But, in long-term use, it gives a greater profit as it can save your effort and time in the process and give you a great opportunity to maintain good relationships with other businesses. 

Regulatory Compliance 

Industry, especially finance, healthcare, etc., must comply with applicable standards and regulations for security and data privacy.

Software providers can develop vertical SaaS software, including regulatory standards, so that businesses using the software can stay compliant and avoid risks. 

Pros and Cons of Vertical SaaS

Some pros and cons of vertical SaaS include:

Pros of Vertical SaaS

• Vertical SaaS will help increase the efficiency of an organization while eliminating manual efforts.
• It saves money, resources, and time in the long run by minimizing the need to have multiple software solutions for businesses. 
• It gives you more flexibility in using software solutions for your specific business needs.
• With vertical SaaS, security and privacy capabilities can be built into software so that users can access the software without worries.
• Vertical SaaS helps entrepreneurs or startup owners develop ideas by choosing a specific business niche and helping other businesses meet their industry-specific needs.
• Vertical SaaS enables software providers to become an expert in a particular niche, which helps them attract more customers.

Cons of Vertical SaaS

• Business expansion is a challenge in vertical SaaS business since potential customers are fewer.
• Spreading brand awareness is difficult as you are only going to focus on a specific industry. 
• Finding new leads for your business growth is difficult. 
• Implementing vertical SaaS is costly and complicated, too, since different customers seek different solutions. 

Challenges in the Vertical SaaS

Let’s discuss some challenges in the vertical SaaS and how a business can overcome them.

#1. Adapt to Change

When you approach any business or industry, they probably are using traditional SaaS software solutions. It is a challenge for you to convince them to implement vertical SaaS in their business since horizontal SaaS offers more features. Switching to something new is quite difficult, especially for large companies. 

Solutions: To improve your brand name and awareness, you must approach small companies or startups as they have limited resources and employees, so switching won’t be a problem for them. If you want to target large companies, you need to make them believe that you can offer better solutions to their businesses. 

#2. Risk of Churn

Vertical SaaS faces a large difficulty in managing SMBs’ expectations. Since vertical SaaS provides end-to-end solutions to businesses to streamline their work, it will cost them a little high. Plus, many organizations already use unified software for their demands. For example, a restaurant uses payment software to generate bills and manage expenditures. 

Therefore, the risk of churn is higher as most SMBs look for affordable solutions for their business.

Solutions: You need to integrate payment software into the SaaS solutions to provide seamless management of payments on the go. This will definitely help you minimize the churn rate. Other than that, you need to collaborate with other businesses on what they want exactly and tell them how you can solve their problems with an all-in-one SaaS solution. 

For example, if a business wants to include project management, payment, security, etc., in a single software, you must focus on developing a vertical SaaS software solution with these capabilities in it.

#3. Competition with Horizontal SaaS

Since you focus on a specific niche of an industry, competition is low. But you do need to compete with horizontal SaaS software solutions, which are in high demand. There are a lot of popular software that offer all-in-one solutions and integration options to businesses. So, it will be difficult for you to convert large industries into your customers. 

Whatever you offer, an entrepreneur might already be using it in their business due to integration functionality. With these existing software solutions, it will be a challenge to convince them to switch to vertical SaaS. 

Solutions: You can think of offering something more to your products that no other software products are offering. Also, you can enhance your customer experiences by providing exceptional support, customizations, insights, reports generation, workflows, payment solutions, and more. 

Make sure what you offer is not currently in trend but valuable. This will attract more leads. In addition, you can offer one-click functionality and customize the structure of different options to provide more trendy experiences to your customers. 

#4. Exhausted Pool of Leads

Vertical SaaS is new and has a small market but is in high competition with traditional SaaS. Your leads could be limited for now, but small businesses and startups can deploy vertical SaaS software solutions in their businesses. Transferring large datasets from one application to another is a time-consuming task, so enterprises often ignore switching.

Although you have a good marketing strategy and offer new features, at a particular state, there will be the risk of minimizing the lead pool. 

Solutions: The primary thing you need to focus on is how to grow your market size by targeting especially startups along with small-sized companies. This will also give you more ideas of what you can do to attract even medium or large-size businesses. Also, you can strategically think about what solutions you can provide, what features you can add, etc. 

Performance Metrics of Vertical SaaS

Most vertical SaaS providers depend on different performance metrics to measure the performance of the software. Let’s discuss some of the useful performance metrics that you can measure if you are a vertical SaaS provider. 

#1. Average Revenue Per User (ARPU)

Average revenue per user is a measurement of the amount generated from every user in a specific time frame. The formula to calculate is: 

ARPU = Total revenue generated / Number of users

#2. Customer Acquisition Cost (CAC)

Customer acquisition cost is the measurement of the total money that you spend to acquire customers. Includes sales and marketing costs, effort and time, resources, etc. It is an essential metric to measure in order to understand if you are making a profit after acquiring customers.  The formula to calculate CAC:

CAC = Total spends in sales and marketing / total number of new customers 

This performance metric helps you improve your ROI and profit margin.

Customer acquisition cost is measured along with customer lifetime value to calculate the revenue generated through the new customer. 

#3. Product Attach Rate

Vertical SaaS companies often focus on providing one solution on specific use cases at the beginning and offer other solutions on the go by understanding their day-to-day problems and work culture.

So, product attach rate is a measurement of the total products (secondary and primary) that you sell and are under the same contract. It means you are calculating how many secondary products you sold with respect to the primary product. 

For example, it can be the number of add-on services to provide to a business with respect to project management software. 

Product attach rate = Total number of products you sold / Total number of consumers

#4. Take Rate

Take Rate is the calculation of commission that an online marketplace takes to facilitate transactions or some other task. It can be calculated as:

Take Rate = Total revenue you generated / total merchandise commission 

#5. Average Order Value (AOV)

Vertical SaaS companies may deal with more transactions with less market size. Average Order value is the measurement of dollars spent by a customer to make a purchase. It means when a customer places an industry-specific order, you can track how much they are willing to spend. 

The formula to calculate AOV is:

AOV = Total revenue / Total number of received orders

Vertical SaaS Products and Services

• Classy: Classy is an online fundraising platform that allows NGOs to connect with donors to help plenty of needy people. It deploys vertical SaaS software for businesses that want to raise funds online to help people. 
• Procore: Procore is a construction project management platform that helps businesses streamline their projects and tasks in a single tool. 
• Textura: Textura is also a construction management platform that offers contract services and payment management solutions.
• Toast: Toast implements a vertical SaaS model to offer CMS and POS systems in one platform, especially for restaurants. This helps them manage payments, teams, online growth, clients, and more. 

How to Implement Vertical SaaS into Your Business

If you want to effectively implement a vertical SaaS model in your business, you need to follow these steps:

Understand Your Market

Since vertical SaaS is an industry-specific model, you need to first research which market you want to target. Make sure you have expertise in that particular niche so you can understand other businesses’ requirements.

Features and Functionalities

When your niche is ready, think of features you can add so that customers using traditional SaaS platforms will have a reason to switch to vertical SaaS.

To do so, you need to analyze existing features and functionalities in your target business’s applications. This will help you understand at what price point you must offer your software to drive adoption.  

Know the Pain Points

Vertical SaaS businesses provide software with unique functionality that other businesses use to meet their needs. To do that, you need to first learn their pain points, like features they are lacking, problems they are facing while using a given software solution, and pricing of the software, etc.

Market Your Product

Promoting your product is an essential step once you are ready with your model. Vertical SaaS doesn’t have competition in the same field but does have competition with horizontal SaaS. The horizontal SaaS market is big, so you need a successful marketing strategy so that target businesses know your existence and what benefit they can get from your model. 

Wrapping Up

In the article, I have tried explaining the effectiveness of this model along with its challenges, performance metrics, and some examples of vertical SaaS products and services that you can consider if you are a software provider or a business seeking such solutions.

Vertical SaaS offers many benefits to providers and consumers alike.

Vertical SaaS gives you the power to develop niche-based software solutions by understanding the pain points of other businesses. Software providers will have the opportunity to grow and establish their name in the market.

At the same time, it caters to the unique needs of businesses using vertical SaaS software and saves their effort, money, and time in managing too many software solutions.