Dear SaaStr: How Big Should The Addressable Market Be to Go into Vertical SaaS?

Dear SaaStr: How Big Should The Addressable Market Be to Go into Vertical SaaS?

I try to look at two things in Vertical SaaS startups, at least when investing:

• Will everyone in the vertical / industry use it? and
• Is the app so core, or at least is on a path to become so core, that they can charge $20,000+ a year for it?  Or at least $10,000 at a minimum?

Even a fairly small business can pay $10,000-$20,000 a year for one app, usually.  Oftentimes, only one. But if it’s the core ERP of their business, what they truly run their company on, that one app … they often can afford $10,000+ and up:

• Toast gets $10k a year from small restaurants
• HubSpot gets $11k a year from SMBs
• Slice gets about $10k a year from pizza shops
• ServiceTitan gets $10k+ a year from plumbers and HVAC companies — to do everything for them.  It’s gone upmarket over time, and is focused today on $100k+ deals, but its core historically has been $10k deals.

If I see evidence of that, I get very bullish — even if the market doesn’t seem huge.

To me, $10k is the firewall.  It’s just hard to get most vertical SaaS start-ups to scale if they can’t get to a $10k ACV.

Now what if you just can’t get $10k+ up from SMBs and SMEs in a vertical?

Then market size starts to be super important. There’s a whole other category of apps SMBs and SMEs can afford that cost $99-$299 a month or so. There are a ton of apps that end up being $3k-$6k a year.

The good news is, you can support these price points effectively with a very efficient inbound sales team, and/or a mix of self-serve and sales-led.

But how do you get to $100m+ in ARR?

You need at least a reasonably large vertical.

So back into how you’ll get to $100m in ARR. Roughly, there are two main strategies:

• One way is with 5,000 customers paying you $20,000+ a year.
• The second is something like 100,000 customers paying you $1,000 a year.
• The third, but less common, is 100 customers paying you $1m+, like Veeva. But this doesn’t work for most of us.

Is the market really big enough so that 10% penetration gets you $100m in ARR? That’s the question. At two different price points.

5 Interesting Learnings from ServiceTitan at $700,000,000 in ARR

And a few other learnings we have now from those that have IPO’d in vertical SaaS or are near:

• Adding a payments and fintech layer can really help.  Toast and Shopify and Bill are really more payments companies today than SaaS companies.
• You probably have to go multi-product much earlier.  Many Vertical SaaS leaders do payroll, finance, accounting, and much more — not just the core software.
• Churn is all over the place with SMBs.  So be honest.  How will you really get to 100%+ NRR, if you aren’t there already?

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