While everyone talks about building the next Salesforce or Slack, the real money is being made by companies you’ve probably never heard of—vertical SaaS businesses that dominate specific industries.
These companies quietly generate higher revenues, better margins, and stronger customer loyalty than their horizontal counterparts. Here’s why, and how you can build one.
What is Vertical SaaS?
Vertical SaaS focuses on solving specific problems for specific industries, rather than trying to be everything to everyone.
Horizontal SaaS Examples:
- Slack (communication for everyone)
- Salesforce (CRM for all businesses)
- Zoom (video calls for all use cases)
Vertical SaaS Examples:
- Veracyte (diagnostic software for pathology labs)
- Toast (point-of-sale system specifically for restaurants)
- Procore (project management built exclusively for construction)
The difference isn’t just focus—it’s fundamental business model advantages.
The Vertical SaaS Advantage
1. Higher Customer Lifetime Value
Vertical SaaS companies see 3-5x higher LTV because:
- Industry-specific features make switching costs enormous
- Compliance requirements lock customers into solutions
- Workflow integration makes the software indispensable
- Industry relationships create network effects
2. Premium Pricing Power
Generic solutions compete on price. Vertical solutions compete on value:
- Toast charges 2.49% + 15¢ per transaction (vs. 2.9% for generic processors)
- Procore costs $375/month per project (vs. $30/month for generic PM tools)
- Veracyte charges thousands per test (because accuracy is life-or-death)
Why do customers pay these premiums? Because generic alternatives can’t handle their specific requirements.
3. Faster Sales Cycles
Vertical SaaS companies close deals 40% faster because:
- Industry credibility shortens trust-building
- Specific use cases eliminate lengthy customization discussions
- Reference customers in the same industry provide immediate validation
- Compliance built-in removes a major evaluation hurdle
4. Better Unit Economics
- Higher gross margins (typically 80-90% vs. 70-80% for horizontal)
- Lower customer acquisition costs through industry channels
- Higher net retention rates (often 110%+ vs. 90% for horizontal)
- Predictable expansion revenue through industry-specific add-ons
The Vertical SaaS Playbook
Step 1: Choose Your Vertical
The best verticals have these characteristics:
Large Enough Market
- At least 10,000 potential customers
- $50+ billion total addressable market
- Growing or stable (not declining)
Specific Pain Points
- Regulatory compliance requirements
- Complex workflows that generic tools can’t handle
- Industry-specific data or processes
Willingness to Pay
- Software budgets of $10K+ annually per customer
- High cost of operational inefficiency
- Strong ROI potential
Accessible Market
- Industry events and publications
- Professional associations
- Clear decision-making processes
Step 2: Go Deep, Not Wide
The biggest mistake is trying to serve adjacent markets too early.
Toast’s Journey:
- Started with quick-service restaurants only
- Perfected that use case for 3 years
- Then expanded to casual dining
- Finally moved to fine dining and bars
- Now worth $20+ billion
Procore’s Path:
- Commercial construction only for first 5 years
- Added residential construction
- Expanded to infrastructure projects
- Built adjacent tools (bidding, safety, etc.)
Step 3: Build Industry-Specific Features
Generic project management has tasks and timelines. Construction project management has:
- Change order workflows
- Permit tracking
- Safety incident reporting
- Subcontractor onboarding
- Equipment scheduling
- Weather delay documentation
These aren’t “nice-to-haves”—they’re business requirements that generic tools simply can’t address.
Step 4: Develop Industry Expertise
Your team needs to understand the vertical as well as your customers do:
- Hire from the industry for key roles
- Attend industry events regularly
- Get industry certifications where relevant
- Join professional associations
- Read industry publications religiously
Step 5: Build Network Effects
Vertical SaaS companies create powerful network effects:
- Marketplace features (contractors bidding on jobs)
- Data sharing (industry benchmarks)
- Integration ecosystems (industry-specific tools)
- Community features (peer networking)
Common Vertical SaaS Monetization Models
1. Per-Seat Pricing
Best for: Professional services, healthcare, education
Example: $100/month per lawyer for legal practice management
2. Transaction-Based
Best for: Restaurants, retail, real estate
Example: 2.5% of gross transaction volume
3. Per-Unit Pricing
Best for: Manufacturing, logistics, agriculture
Example: $50/month per vehicle for fleet management
4. Outcome-Based
Best for: Healthcare, finance, insurance
Example: $1,000 per successful insurance claim processed
5. Hybrid Models
Many successful vertical SaaS companies combine approaches:
- Base subscription + transaction fees
- Seat pricing + usage overage charges
- Tiered pricing based on company size
Market Entry Strategies
The Trojan Horse Approach
Enter with a simple tool that solves one problem, then expand:
- Toast started as just a POS system
- Veracyte began with one type of diagnostic test
- Procore launched with basic project tracking
The Full-Stack Play
Build a comprehensive solution from day one:
- Higher initial development costs
- Longer sales cycles
- But stronger competitive moats once established
The Integration Strategy
Build on top of existing industry-standard software:
- Lower development costs
- Faster time to market
- Risk of platform dependency
Funding Vertical SaaS
VCs love vertical SaaS because the metrics are superior:
Series A Benchmarks:
- $1M+ ARR
- 150%+ net dollar retention
- <6 month payback period
- 80%+ gross margins
Typical Valuations:
- Early stage: 15-25x revenue multiple
- Growth stage: 10-20x revenue multiple
- Public markets: 8-15x revenue multiple
Compare this to horizontal SaaS multiples of 5-12x across all stages.
Success Stories by Industry
Construction: Procore
- Started 2002
- IPO 2021 at $9 billion valuation
- 1M+ users across 125 countries
Restaurants: Toast
- Started 2011
- IPO 2021 at $20 billion valuation
- Processes $68+ billion in gross payment volume
Real Estate: MLS Systems
- Multiple billion-dollar companies
- Near-monopolies in local markets
- 90%+ market penetration
The Risks
Market Size Limitations
- Harder to build $10+ billion companies
- Limited expansion opportunities
- Vulnerability to industry downturns
Regulatory Changes
- Industry regulations can make features obsolete overnight
- Compliance costs can be significant
- Government policy changes affect entire vertical
Competition from Industry Incumbents
- Established players have deeper industry relationships
- Industry knowledge takes years to develop
- Customer conservatism in some verticals
Getting Started
If you’re considering vertical SaaS:
- Pick an industry you understand deeply
- Identify the biggest pain point that no one has solved well
- Talk to 50+ potential customers before writing code
- Build the minimum viable solution for that one pain point
- Get 10 paying customers before expanding features
The vertical SaaS model isn’t just about building better software—it’s about becoming an indispensable part of how an industry operates.
Ready to explore how your industry expertise could become a vertical SaaS business? Let’s discuss which pain points in your field could support a multi-million dollar software solution.