Should You Add Payments to Your Platform?
Should You Add Payments to Your Platform?
New Vertical Software Benchmarks
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Should You Add Payments to Your Platform?
Our friends at Tidemark just dropped a one-of-a-kind benchmarking report specific to Vertical SaaS and SMB. They tackled a critical question technology companies grapple with (myself included): Should we add payments?
A friend once said to me “You either die a software company, or live long enough to become a Fintech.” He was saying it in jest, but the sentiment rings true; in the same way investors in Florida reflexively ask “Can I build a condo on this?” Vertical SaaS investors are quick to ask “Can I add payments to this?”
If I were to generalize, the answer leans towards yes. The report shows that payments, or fintech modules, consistently drive the highest uptick in average revenue per location. This compares to adding other offerings, such as employee management, back office tooling, commerce, HR, time tracking, and CRM.
Payments are a tempting addition for any business looking to expand wallet share with the same customer. The customer is already using you - so why not get another bite at the apple?
However, the decision isn't one-size-fits-all.
Do you occupy a control point?
Can you make enough money?
Benchmarked against industry norms for your sector
Will it make customers stickier?
Determined by gross and net retention rates
Here are my takeaways from the report:
Boosting Platform Stickiness (Slide 46): Adding a payments product significantly enhances overall platform stickiness. When you consider that most vertical software companies are Small Businesses who are more likely to go out of business or churn compared to larger, enterprise customers, ~6% to 7% higher GRR and NDR are nothing to shake a stick at.
Variation in Net Take Rates (Slide 48): The profitability of payments products can vary widely, with a median net take rate of approximately 0.8% of gross merchandise value (GMV). To make that more real - if you process a $100 check, you walk away with 80 cents.
Industry-Specific Take Rate Differences (Slide 49): The net take rates vary significantly across different verticals. For example, transportation and restaurants crush it, while the real estate and auto sectors are unable to extract as much value.
Net net - a successful payments implementation hinges on earning the right to support payment workflows and the estimated economics you can capture. The product cost can actually be quite low, given how great some of the third party products are, particularly Stripe. But you’re still changing the customer experience with payments, not just swapping out the payment processor. And that’s always easier said than done.
If done right, payments should make you stickier - but you need to be logically qualified to provide them in the first place. All of this requires an honest assessment of how critical you are to your customer’s operations.
What I’ve Been Reading
If you are an investor or thinking about becoming one, I have a treat for you today. Aleksey Chernobelskiy (X | LinkedIn) previously managed a $10 billion real estate portfolio. Today, Aleksey advises passive investors (limited partners) and writes about these topics weekly to over 4,000 investors at www.LPlessons.co. You can find an entire index of his 70+ Substack articles here.
Run the Numbers
Apple | Spotify | YouTube
Do you know how damn hard it is to talk to yourself for 35 straight minutes? Probably one of the scarier things I’ve done.
I yammer on about all the different ways to monetize your business model, and what true revenue durability means.
Quote I’ve Been Pondering
“He told Brady, “F’ that, go out there and sling it.””
It's Better to Be Feared by Seth Wickersham