As businesses focus on “efficient growth,” vertical software has become more popular because it has lower costs to acquire new customers, more increase sales, and better gross retention than horizontal software.
Here are some reasons why you might want to change your horizontal software to draw buyers who buy vertically, along with some important tips to help you do it.
Focusing on the horizontal or the vertical will help the software market grow.
A vertical software company makes software that works well for certain types of businesses, like plumbers, car shops, and food distributors. Software for managing building projects is sold by ProCore, and software for managing apartments is sold by AppFolio.
However, horizontal software is more general and can be sold to any business, with a focus on either the B2C or B2B market. A few examples of horizontal software businesses are Salesforce, Atlassian, and HubSpot.
For the years 2021 and 2022, it was easy for software companies to get a lot of money and users. During this time, there wasn’t much difference between how well horizontally and vertically focused software companies grew.
Vertical software is becoming more popular in 2024, with the slogan “efficient growth” in mind. If you look at the financial records of public SaaS companies from 2023, you can see that both vertical and horizontal SaaS grew by 17%, which is pretty much the same. On the other hand, horizontal SaaS spent 41% of its income on sales and marketing, while vertical SaaS only spent 22%.
Companies that use SaaS that are vertical spent $1.76 on each new dollar of ARR, while companies that use SaaS that are horizontal spent $2.40. Vertical software businesses have lower costs to acquire new customers, more sales as they grow, and better gross retention. Their very specific solutions are made to be used right away in the everyday lives of their customers.
Also, their marketing is very specific, using terms, regulations, and use cases that are specific to their business. The prices are based on how vertical customers get value, and these businesses are well known at trade shows and in the media for their own industries. People who buy software often feel like they’re losing out because their competitors may be using it.
Horizontal software marketing is less focused on a single industry by nature. Homepages usually have broad value propositions, customer quotes from a range of businesses, and general value statements. Most websites have a menu item called “Industries We Serve,” which lists business types like retail, software, financial services, consulting, agencies, and higher education. These parts have case studies and language that are specific to the industry, but they aren’t as in-depth as vertical marketers’ sections.
How to make your program work for vertical markets
In a market that is focused on vertical products, horizontal products can do well by really becoming very vertical. It’s important to remember that vertical buyers are still out there and working.
You can keep using horizontal go-to-market methods, but if you don’t have a clear plan, you could burn out your team. Here’s how to get buyers from other industries to buy your horizontal software and make it work.
- Pick one vertical.
Pick an area you want to dominate and make sure you have a group of happy customers, case studies, a strong logo, and a product that fits the needs of the market. In this area, you want your competitors to be weak.
- Put your customers and leads into groups.
Create and keep up to date a database of all the buyers and ideal customer profiles (ICPs) in this category.
- Do some research.
Talk to your customers and potential customers in this market to make an ICP and buyer persona that are strong. To avoid making assumptions, learn about their daily tasks and compare them to those of your other customers.
- Check how the product fits.
Do study on buyers to see your product from their point of view. Find small details that might not work well with your product, especially when it comes to rules and connections.
Figure out what you’re going to replace in this vertical and what success looks like. You can make changes to your product without changing your whole plan. Look over your prices and packing to make sure that the “units” you charge for make sense for this group of customers.
Because they are further down the stack, vertical software often needs more services, so think about what services you offer as well.
- Ads, content, and the internet experience.
Use parts of the vertical to make your brand unique. If you want to reach people in the pharmaceutical industry, make sure that your ads, content, and branding look and read like they belong in that business.
Keep up with the newest issues and patterns, and share what you’ve learned in business media or specialized groups.
- Be a boss in your own mind.
Take part in events, groups, and trade shows that are related to the vertical. Get speaking opportunities with influential people so that your customers can talk about the vertical fit. Hold regular online events about hot topics in the vertical.
- Task group for sales and customer satisfaction.
Pick a small group of sales reps, sales engineers, and customer success reps who have been trained well in the field. They should be able to talk to customers in their own language, be helpful, and be able to quickly find customer stories. Ask people for comments to find any new problems or chances.
- Keep score of wins and losses and enjoy them.
Everyone you talk to as a buyer is useful, even if the deal doesn’t go through. Look at losses to figure out how to improve plans, and celebrate wins to get everyone on board. With each win, you get closer to vertical efficiency.
Changing from horizontal to vertical growth in SaaS
Putting this plan into action is hard, and many attempts fail because people give up too soon or don’t have enough conviction, which increases the cost of getting new customers. But if you keep at it, word-of-mouth will spread like wildfire, bringing in high-quality buyers who move quickly.