Current State of Vertical SaaS in 2025

Welcome to the 33rd Network Effects Newsletter,

Last week, Tidemark, in collaboration with Stripe, launched its 2025 Vertical & SMB SaaS Benchmark Report. This is the definitive data on where VSaaS companies are starting, how they're expanding, and how they're finally monetizing AI. 

In this newsletter, we’ll uncover the key findings to the following questions: 

Let’s dive in.

A strategic wedge refers to the primary product of the vertical platform, serving as an entry point to the customer’s workflows and data ecosystem. 

The most common primary product categories are

Roughly ~25% of companies labelled their primary product as “Other,” which often means a niche workflow or a unique vertical-specific system that doesn’t neatly fit standard labels.

In a more granular view, the top five primary product types in our sample were Practice Management, CRM, Accounting, POS, and Inventory Management, which are consistent with the survey results in 2024. The commonality across the top primary product types is that these systems are where the worker lives or where the most critical data resides. By beginning at the heart of operations, you earn the trust required to later extend into additional products.

As vertical platforms grow, their product offerings will naturally expand to cover more of their customer' needs, expanding from a single product to a multi-product platform. 

Tidemark suggested that a company’s primary product often predicts its expansion path or what the first add-on product will be. Tidemark has mapped the category linkages between products and affirmed that Fintech has become the most common expansion path, regardless of where they started.

For example, 44% of respondents who started with a Back Office product expanded into Fintech, and 41% of those who started in Commerce. 

However, only 7% started in FinTech and then expanded into employee management, since the commerce flow resides outside of employee management. 

Multi-product businesses are seeing tangible economic improvements.

Using the median 2024 Annual Recurring Revenue (ARR) growth, Multi-Product companies grew about 21% faster than their Single-Product peers. Multi-Product firms can achieve 5% higher in Net Retention Rate (NRR) than their Single-Product peers. The ability to cross-sell new modules allows firms to extract significantly more value over time from their existing, loyal customer base.

However, the median Gross Revenue Retention (GRR) was 2% lower for Multi-Product companies at 90%. This indicates that foundational stickiness is more closely tied to winning the core Control Point (e.g., Practice Management) than to the sheer number of products sold. The core value must remain sticky regardless of product breadth.

Payments are the first step to the Fintech journey for nearly every VSaaS company. A whopping 87% of companies with a Fintech offering had payments in their portfolio, up substantially from 30% last year. 

Payments contributed an average of ~$4.2K in incremental ARR per customer for those who had it. This is a powerful, recurring revenue stream that significantly increases the Average Revenue Per Account (ARPA) and overall valuation multiples in SMB SaaS economics.

The adoption of payments is also rapidly on the rise. The median payment attach rate surged to ~40%, up from about 20% the year prior. This 100% YoY increase indicates that VSaaS companies are mastering adoption, whether through bundling, making payments the default option, or through overall market maturity. 

AI is being applied widely across the core platform, applications spanning Front-Office, Back-Office, and everything in between, wherever repetitive work or data-driven needs exist. The top two areas for AI adoption were Commerce/Front-Office (50%) and Back-Office (48%). This means features are split almost equally between: 

By automating data entry, improving customer service, or enhancing predictive scheduling, AI is deepening the value of the primary software, making it harder to switch out and easier to upsell new modules, given the contextual advantage it has over any other vendor solutions.

2025 marks the beginning of real monetization discipline for AI in Vertical SaaS. 

There has been a decline in respondents with an AI product now offering it completely free (24% in 2024 -> 19% in 2025). This shrinking minority is likely only doing so while in beta or to drive initial, critical adoption.

In fact, 86% of companies with AI features are now charging in some form. Monetization models vary, often depending on the feature's value delivery. These models include a fixed subscription for access, a per-seat add-on, or a usage-based charge for consumption (e.g., per API call).

Crucially, the data shows that companies are using hybrid monetization strategies. This means a base subscription fee plus overage charges for heavy usage. This approach balances predictable recurring revenue with the ability to capture expansion revenue as the customer gains more value and utilizes the AI features more frequently.

If you found this valuable, consider sharing with a colleague or founder in vertical SaaS.

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