How big should the addressable market be to go into vertical SaaS? Is it a good idea to avoid the addressable market if it appears small?
I try to look at two things in Vertical SaaS:
- Will everyone in the industry use it? and
- Is the app so core, they can charge $20,000+ a year for it?
Even a fairly small business can pay $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 $20,000+ and up.
If I see evidence of that, I get very bullish, even if the market doesn’t seem huge.
Now what if you just can’t get $20k+ 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 an efficient inbound sales team.
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.