1. Vertical SaaS companies tend to have lower Customer Acquisition Costs (CAC) than Horizontal SaaS companies
Focusing on a more targeted customer base, vertical SaaS companies maintain their experienced sales teams to connect with industry professionals and make the sales. Although maintaining the sales teams requires more money, vertical SaaS companies ultimately spend less on marketing than its horizontal counterparts, who try to market products to a much broader market. According to Blossom Street Ventures, vertical SaaS companies can realize 8x cheaper CAC than horizontal SaaS companies.
2. Vertical SaaS companies tend to have lower churn rate, higher upsell opportunities, and more referral conversions, translating to higher revenue stream
Vertical SaaS companies tailor their products to meet specific-industry needs. Once a customer gets on board, it’s less likely for that customer to switch products, since the costs of moving businesses/operational platforms around is higher than those appear in the horizontal SaaS market. The upsell opportunities are also high for vertical SaaS companies, because industry professionals prefer to use an operational system that can meet all their needs rather than multiple individual services without much integration between them. Moreover, by establishing the reputation in the industry, personal referrals could replace part of the company’s sales efforts and further increase upsell opportunities. Based on Blossom Street Ventures, the median of all publicly traded vertical SaaS companies was at 6.8x revenue compared to 3.8x for horizontal SaaS companies. The mean EBITDA margin for vertical SaaS was 14%, compared to -3% for horizontal SaaS as of March, 2017.