Vertical Saas with AI

VSaaS is scaling once more, this time driven by artificial intelligence (AI).

In this post, we explore how AI is elevating revenue per customer in VSaaS by enabling companies to tackle complex tasks that traditional software alone couldn't handle. AI is allowing VSaaS customers to significantly cut down on labor costs in areas such as sales, marketing, customer service, operations, and finance. (In our next post, we’ll examine how AI is opening new markets and making existing ones more profitable.)

The Evolution of Vertical SaaS

Vertical software markets often have winner-take-most dynamics, where the SaaS provider that best addresses the specific needs of an industry often becomes the leading solution.

The first wave of VSaaS brought cloud solutions online (e.g., Shopify for e-commerce, ServiceTitan for service professionals). The second wave combined cloud and fintech, enhancing revenue by allowing VSaaS companies to embed financial services directly within their platforms. For instance, Toast, through embedded payment processing, lending, and payroll, now generates over 80% of its $1.5 billion annual recurring revenue (ARR) from fintech solutions.

Now, we’re at the start of a third wave in VSaaS: cloud + fintech + AI. This wave—arguably the most transformative yet—is pushing the boundaries of VSaaS by turning labor-intensive tasks into software-driven solutions.

AI’s Impact on VSaaS Revenue Per Customer

To see the value of AI in VSaaS, let’s look at Mindbody, a company that provides software to fitness and beauty studios. In the first wave (cloud), Mindbody introduced online booking and scheduling. In the second wave (cloud + fintech), it expanded to offer payroll, customer payment processing, and insurance solutions for studios.

Despite these advancements, fitness studios still require staff for core operations like marketing, sales, customer support, and financial management.

With the third wave, powered by AI, VSaaS platforms can help businesses reduce reliance on labor for tasks where human involvement isn’t essential to customer experience or strategic differentiation. While fitness studios will always need human instructors to build rapport and provide a personal touch, AI can augment or even fully replace roles in areas such as customer service and financial administration.

For VSaaS companies, this means that customers can save significantly on labor costs across multiple functions, potentially driving a 2-10x increase in revenue per customer.