Vertical SaaS: Definition, Benefits, and Top 3 Industry Examples

There are two SaaS models you can use to grow your business: horizontal and vertical.

The horizontal SaaS model essentially refers to offering solutions for a wide variety of users.

With a vertical SaaS model, on the other hand, you only offer SaaS for a niche industry.

While horizontal SaaS has been around for years, the vertical SaaS model only recently entered the market.

If you aren’t sure what vertical SaaS is and whether it is right for your business, read along and find out all about it including:

• What is Vertical SaaS?
• Differences Between Vertical and Horizontal SaaS
• Implementing a Vertical SaaS Strategy For Your Business
• Top Vertical SaaS Examples

What is Vertical SaaS?

Vertical SaaS, also known as vertical cloud, is a software as a service (SaaS) solution that is specifically designed for a niche industry, such as healthcare, insurance, or retail.

The vertical SaaS model is a relatively new trend in the SaaS market. Before it was developed, SaaS businesses would use the horizontal SaaS model, which aims to cater software to a wide variety of businesses regardless of the industry.

Unlike horizontal SaaS software, however, vertical SaaS software targets a narrow audience. Because of this, vertical SaaS companies have a much smaller potential market and thus a more targeted approach to marketing. This means that marketing vertical SaaS tools often requires fewer resources than marketing horizontal SaaS solutions.

Vertical SaaS solutions may either solve one problem or a plethora of problems. In any case, they help businesses solve specific, industry-related challenges. For this reason, it’s not uncommon for industry experts to develop vertical SaaS tools to be used by businesses in the industry.

Differences Between Vertical and Horizontal SaaS

Now that you know what vertical SaaS is, let’s see how it differs from horizontal SaaS in all aspects. This alone can give you an idea of which model would work better for your SaaS strategy.

Horizontal SaaS simply refers to software that caters to a large variety of users. As such, a horizontal SaaS tool aims to act as a solution that appeals to a wide audience, regardless of the industry.

Essentially, this is the main difference between horizontal and vertical SaaS, as vertical SaaS tools are solutions for a specific industry.

That said, there are more differences between horizontal and vertical SaaS you should know about. For ease of comparison, we’ve laid out these differences in a table:

The Rise of Vertical SaaS

Software as a Service, as we know it today, evolved from application service providers (ASP), which delivered applications to customers over the Internet. This helped individuals and enterprises minimize expenses, as they no longer needed to install and maintain applications manually.

SaaS is, essentially, an extension of the ASP model. The main difference between the two is that SaaS businesses manage their own software, whereas ASP businesses manage third-party software. On top of that, you might need to install ASP applications on your device to start using them.

In the beginning, SaaS companies focused on offering solutions for a variety of different users, thus maximizing their profits.

However, in the last decade, SaaS reached a new stage in its evolution, as companies began to specialize in specific sectors. Today, we call this the vertical SaaS model.

Advantages of using Vertical SaaS

The vertical SaaS model is quickly rising in popularity among SaaS businesses, and not without good reason.

Here are the key advantages of the vertical SaaS model:

• Good conversion rates. Compared to horizontal SaaS, vertical SaaS companies typically have a higher conversion rate. This is mainly because vertical SaaS solutions and their marketing strategies target narrow, niche markets.
• Low CAC. In addition to having higher conversion rates, vertical SaaS companies also spend around 22% less on sales and marketing than their horizontal counterparts. As such, they achieve a lower customer acquisition cost (CAC).
• Less competition. Generally, vertical SaaS companies face lower competition than horizontal SaaS businesses. In turn, vertical SaaS companies have better chances of establishing leadership in a specific industry. Not to mention, lower competition makes it much easier for startups to enter the market.
• Low customer churn. Vertical SaaS companies offer solutions that solve industry-specific challenges and easily adapt to their customers. As a result, vertical SaaS companies are more likely to retain customers and experience low customer churn.
• High growth potential. Because they offer customized solutions, vertical SaaS companies have a competitive advantage over horizontal SaaS businesses. On top of that, vertical SaaS businesses also have better odds of upselling their customers, which further drives revenue growth.
• Increased customer trust. As mentioned above, vertical SaaS tools are often developed by experts that have extensive industry knowledge and experience. Because of this, potential customers are more likely to trust and purchase vertical SaaS solutions than horizontal SaaS products.

Vertical or Horizontal SaaS: Which One is a Better Fit for Your Business?

Now, you may be wondering which SaaS model, vertical or horizontal, is better for your business.

To make the right decision, you first need to evaluate your product and long-term goals.

In short, your business will benefit from a vertical SaaS model if:

• You want your SaaS tool to cater to a single industry, such as hospitality, marketing, or banking.
• Your goal is to establish leadership in a specific industry.
• You’re willing to regularly update your product and add more features to match the needs and trends of a niche industry.

On the other hand, if you want a SaaS product made for customers in several different industries (or regardless of the industry), you want to use the horizontal SaaS model.

It’s important to note that the process of creating a vertical SaaS tool widely differs from building a horizontal SaaS product. For example, if you’re building a vertical SaaS product, you will need to ensure that it meets industry-specific compliance requirements.

For this reason, it’s important that you choose the right SaaS model for you before you start building your SaaS product.

Implementing a Vertical SaaS Strategy For Your Business

If you’ve decided that the vertical SaaS model is right for your business, your next step will be to implement a vertical SaaS strategy.

Here’s an easy-to-follow step-by-step guide that will help you effectively implement a vertical SaaS strategy:

#1. Research the Market

Before all else, it’s crucial that you do extensive market research.

This will help you select the right industry and ensure that your product offers exactly what the industry needs.

Essentially, you want to research your options and choose an industry that has the biggest growth potential.

You also want to make sure that the industry isn’t oversaturated with SaaS products. Unless your product offers unique features and fills a gap in the industry, you might find it challenging to enter an overly saturated market.

Once you’ve picked an industry, you should research your top competitors, both horizontal and vertical SaaS companies. By analyzing their features and pricing, you can get a good understanding of what your product should offer and at what price point.

#2. Learn the Industry’s Pain Points

Simply put, you want your vertical SaaS product to address specific issues in an industry.

For this reason, if you aren’t an expert in that industry, your next step should be to learn the key challenges your target customers face.

The most effective way to do this is by talking to industry insiders, such as your potential customers and researchers.

This way, you can understand what features you should add to your product so that it effectively solves your customers’ problems. In turn, this can increase both customer acquisition and customer retention.

#3. Include Industry-Specific Compliance Tools

To increase the value of your vertical SaaS product for your customers, you want to customize your product for a specific industry.

One of the best ways to do this is by offering as many industry-specific compliance tools and standards as possible. This alone can entice businesses to switch from horizontal SaaS products to using your product.

For example, if you offer vertical SaaS for the healthcare industry, you should make sure your product includes HIPAA compliance tools.

#4. Advertise Your Product

The last step of implementing a vertical SaaS strategy is promoting your product to attract the right customers. This is especially important if there are well-established competitors in the industry.

To successfully advertise your product, you want to develop a niche marketing strategy. In other words, your marketing strategy should be tailored to your target industry.

As a vertical SaaS business, you’ll likely benefit from running targeted PPC ads. To make the most of your campaign, make sure it’s optimized for mobile and includes both short-tail and long-tail keywords.

Top Vertical SaaS Examples

Now that you know how to implement the vertical SaaS model in your business, let’s take a look at 3 examples of top vertical SaaS companies for some inspiration.

#1. Toast

Toast is a vertical SaaS company that offers a customer management system and a point of sale (POS) system in a single platform, exclusively built for restaurants.

This vertical SaaS tool helps restaurants efficiently run their businesses, manage teams, promote online growth, attract and retain clients, and much more.

Toast caters to the needs of different businesses in the restaurant industry, from food trucks to fine dining restaurants.

Founded in 2011, today Toast makes $260.6 million in annual recurring revenue (ARR).

#2. Madwire

Madwire is a vertical SaaS technology company that provides small businesses and franchises with business management and marketing software.

Madwire’s mission is to help small businesses grow. As such, their vertical SaaS product offers small businesses everything they need to succeed, including tools for:

• Building a website
• Accepting payments
• Managing appointments
• Building a social media presence
• Content marketing, and more

Madwire was founded in 2009 in Fort Collins, Colorado. In 2022, the vertical SaaS company made $96 million in ARR.

#3. Classy

Classy is a vertical SaaS company that provides an online fundraising platform specifically for non-profit organizations. The platform allows non-profit organizations to connect with their donors, which helps nonprofits raise more funds.

Classy enables international fundraising, recurring giving, peer-to-peer fundraising, crowdfunding, and much more. On top of that, it helps non-profit organizations manage their donations, process payments, and create fundraising events.

Classy was founded in 2006 and makes $54 million in ARR.

Final Thoughts

And that’s all – by now you should know just about everything you need to know about the vertical SaaS model, from its definition to implementing it in your business.

Before you go, here’s a quick recap of the key points of this article:

• Vertical SaaS is a SaaS model where companies provide software for a specific industry.
• The main difference between horizontal and vertical SaaS is that horizontal SaaS caters to a wide audience, whereas vertical SaaS is tailored for a niche industry.
• Traditionally, SaaS businesses used the horizontal SaaS model, as it used to bring in more revenue while the vertical SaaS model was still relatively new.
• Some of the key advantages of employing the vertical SaaS model are higher conversion rates, low CAC and customer churn, as well as higher customer trust.
• Vertical SaaS is best for businesses that aim to establish leadership in a single industry, whereas horizontal SaaS works best for companies making products that benefit customers regardless of the industry.
• To successfully implement a vertical SaaS strategy, you need to research the market, discover key industry challenges, build industry-specific tools into your product, and promote it.