The internet economy is rapidly evolving, and it's not just about tech giants and Silicon Valley startups. Stripe's 2024 Annual Letter highlights a powerful trend that's transforming Main Street: Vertical SaaS.
What is Vertical SaaS?
Unlike horizontal SaaS (think general-purpose tools like CRMs or project management software), vertical SaaS platforms are tailored to the specific needs of a particular industry. As the Stripe letter puts it, platforms like Slice, an all-in-one Vertical SaaS for independent pizzerias, provide businesses with "a logo, website, payment system, ordering system, marketing toolkit, and branded boxes—basically everything else they need to operate their pizza business (except an oven and the perfect sauce)."
Vertical SaaS: Leveling the Playing Field
The Stripe letter points out how independent pizzerias saw a decline until 2017, after which, thanks to platforms dedicated to the specific needs of pizzerias, the trend inverted. By 2023, more independent pizzerias launched in America than in any other year on record.
According to Stripe, 60% of all small businesses in America use vertical SaaS platforms to help run their business.
By offering industry-specific solutions, vertical SaaS empowers small businesses to:
- Compete with larger players: They can access tools and technologies previously only available to enterprises with deep pockets.
- Streamline operations: Purpose-built software eliminates the need for generic solutions and manual workarounds.
- Focus on their core competencies: By automating tasks and simplifying processes, business owners can dedicate more time to what they do best.
Examples of Vertical SaaS in Action
The Stripe letter showcases a wide array of vertical SaaS platforms serving diverse industries:
- SingleOps: For arborists
- Traxero: For towing companies
- Transformity: For liquor stores
- Moxie: For med spas
- Clio: For independent law firms
- Skimmer: For pool cleaners
- Tithe.ly, Subsplash, Pushpay: For churches
- Shulware: For synagogues
- Procede: For truck dealerships
- Meadow Memorials, Tribute Technology: For funeral homes
The Numbers Don't Lie
The impact of vertical SaaS is evident in the bottom line. Stripe's data reveals that in the US, 6.3% of SMBs powered by vertical SaaS platforms earn $1 million in total revenue in their first year—nearly 60% more than a benchmarked comparison set.
The Payroll Opportunity
One of the most promising opportunities within this space is embedded payroll. By integrating payroll into their platforms, vertical SaaS providers can significantly expand revenue, increase customer retention, and enhance operational efficiency for their clients. Embedded payroll can lead to substantial revenue growth, with potential ARPU uplifts of up to 40%. It also provides a stable, recurring revenue stream, as payroll relationships typically last around eight years. Moreover, access to payroll data offers valuable insights that can drive product development and improve customer experiences.
Vertical SaaS platforms are uniquely positioned to offer industry-specific payroll solutions, addressing complex labor practices and payment schemes in sectors like salons, restaurants, or healthcare. For instance, platforms like Ease and Alpaca Health have successfully integrated Rollfi's payroll features tailored to Private Practices. By capitalizing on this opportunity, vertical SaaS providers can differentiate themselves from generic solutions and become indispensable partners for small businesses. Whether through partnerships or in-house development, embedded payroll is poised to become a key differentiator in the vertical SaaS landscape, driving growth and innovation across industries.
The Future is Vertical
Stripe's letter makes it clear: vertical SaaS is not just a trend, it's a fundamental shift in how small businesses operate and compete. As these platforms continue to evolve and integrate with emerging technologies like AI, we can expect even more exciting opportunities for Main Street to flourish.
About Rollfi
Rollfi provides the fastest way for Banks, Vertical SaaS companies, Accounting Firms, and Fintechs to integrate payroll and benefits into their offerings through our white-label solutions + robust APIs. By leveraging Rollfi’s infrastructure, businesses can unlock new revenue streams, increase customer retention, and access valuable payroll data insights. With rapid deployment and comprehensive coverage, Rollfi transforms your platform into a one-stop-shop for essential services, driving growth and enhancing customer satisfaction.
