From Sign-Up to Retained: Embedded Accounting's Growth Impact on a User’s Lifecycle

One of the most time-consuming and critical aspects of running Small and Medium-sized Businesses (SMBs) is managing finances. According to research from Cornerstone Advisors, the average small business owner spends a staggering 20 hours per week on accounting tasks alone. This not only diverts precious time from core business activities but also increases the risk of errors and oversight.

Embedded accounting is pivotal in the vertical SaaS landscape, transforming how SMBs manage their finances. As the integration of accounting functions within industry-specific software becomes increasingly common, it's critical to understand its far-reaching impact beyond mere convenience.

For SaaS providers, embedded accounting isn't just another feature — it's a powerful driver of user engagement and retention. It addresses a critical pain point for SMBs, who typically spend an average of 20 hours per week on accounting tasks. By bringing these functions directly into the platforms they use daily, embedded accounting is redefining the value proposition of vertical SaaS solutions.

But how exactly does this integration affect the user lifecycle? From initial sign-up to long-term retention, embedded accounting is reshaping each stage of the customer journey. It can influence acquisition strategies, enhancing user activation, opening new avenues for upselling, and significantly boosting retention rates.

Increased User Acquisition

The first step in any user's journey is discovering and choosing your platform. Here's why embedded accounting can be a powerful draw:

• Meeting Unmet Needs: A staggering 74% of SMBs are likely to seek new industry-specific software that includes accounting functions. This statistic from the research from Cornerstone Advisors reveals a significant gap in the market that your platform can fill.
• Addressing Pain Points: Accounting tasks consume a substantial portion of an SMB's time and resources. By offering a solution that integrates these functions, you're directly addressing a major pain point for potential users.‍
• Competitive Differentiation: In a crowded market, having embedded accounting features can set your platform apart from competitors, making it more attractive to potential users who are comparing options.

Activation

Once a user signs up, the next step is getting them actively engaged with your platform. Embedded accounting can play a pivotal role in this phase by enhancing product stickiness.

Product Stickiness

Product stickiness measures how frequently and consistently your customers engage with your product. It's typically calculated by dividing Daily Active Users (DAU) by Monthly Active Users (MAU), though this may be adjusted based on your platform's intended usage frequency.

As we’ve mentioned, small businesses spend an average of 20 hours each week on accounting functions, including bookkeeping, invoicing, expense tracking, financial reporting, and tax management. This represents a substantial opportunity for your platform to capture user engagement.

By integrating embedded accounting APIs into your platform, you create a comprehensive solution for your customers' business operations. This integration can significantly increase the time users spend on your platform, streamline their workflows, and provide valuable data integration, all contributing to improved stickiness and user activation.

Upsell Opportunities

Embedded accounting doesn't just improve stickiness; it also opens up new avenues for increasing revenue per user and boosting Average Revenue Per User (ARPU). Here's how:

• Increased Willingness to Spend: According to a Katana Shopify Report, 94% of SMBs intend to increase their spend on SaaS technology in 2024. By offering more comprehensive solutions through embedded accounting, you position your platform to capture a larger share of this increased spending.
• Tiered Pricing Models: You can offer basic accounting features in your standard package and more advanced features (like detailed financial reporting or tax preparation assistance) as premium add-ons. This strategy allows you to justify higher pricing tiers, directly impacting your total revenue.
• Addressing the ARPU Challenge: Many vertical SaaS companies face stagnant ARPU despite growing subscriber bases. Embedded accounting can be the key to unlocking ARPU growth. According to research by a16z, integrating fintech features (including accounting) into SaaS businesses can increase revenue per customer by 2-5 times.
• Solving SMB Pain Points: Nearly 6 in 10 SMBs complain that their accounting functions are manual and labor-intensive, while 30% to 42% report untimely processes. By addressing these pain points through embedded accounting, you create a compelling reason for users to upgrade to higher-tier subscriptions.
• Reducing Third-Party Accounting Costs: SMBs, especially smaller ones, spend a significant percentage of their revenue on third-party accounting services. By offering a more cost-effective, integrated solution, you can capture a portion of this spend, increasing your ARPU while saving your clients money.‍
• Value-Driven Pricing: The addition of embedded accounting allows you to price your product based on the enhanced value it provides. This "better value ratio" justifies higher pricing and can drive substantial ARPU growth.

Implementing embedded accounting strategically can significantly enhance your platform's value to SMBs. By addressing critical financial management needs, you create opportunities for tiered pricing, premium features, and expanded services. This not only has the potential to increase ARPU but also positions your platform as a more comprehensive solution in the competitive vertical SaaS landscape.

Retention

The ultimate goal of any SaaS platform is to retain users long-term. Embedded accounting can play an important role in improving retention rates:

Addressing a Critical Need

According to the U.S. Bureau of Labor Statistics:

• Approximately 18% of small businesses fail within their first year
• 50% cease operations after five years
• 65% close their doors by their tenth year of operation

The primary reasons for these failures often revolve around financial mismanagement. By providing embedded accounting tools,  you're providing a lifeline that can help your SMB customers stay in business (i.e. survive).

Benefits for Retention

1. Financial Health Monitoring: With integrated accounting, you can provide users with real-time insights into their financial health, helping them make informed decisions and avoid common pitfalls.
2. Reduced Churn Risk: As users rely on your platform for critical financial operations, the cost (in time and effort) of switching to another solution increases, reducing the likelihood of churn.
3. Continuous Value Demonstration: Regular accounting reporting and insights provided through your platform serve as constant reminders of the value you're providing to your users.
4. Proactive Support: With access to users' financial data, you can offer proactive support and advice, further cementing your platform's role as an indispensable business partner.

Strategic Implications for Vertical SaaS Providers

The integration of embedded accounting into vertical SaaS platforms represents a significant shift in how these services can provide value to SMBs. This approach offers multifaceted benefits that extend across the entire user lifecycle. 

This strategy also aligns closely with the evolving needs of SMBs, who are increasingly seeking comprehensive, integrated solutions to manage their operations efficiently. By providing these tools, vertical SaaS providers not only improve their own metrics but also contribute to the financial health and success of their SMB clients.

As the SaaS landscape continues to change, the ability to offer integrated, value-driven solutions like embedded accounting may become a key factor in determining market leaders. For vertical SaaS providers, carefully considering and implementing such components is necessary in maintaining competitiveness and driving long-term growth.