The Product-Led Path to Higher ARPU: Embedded Accounting for Vertical SaaS

Vertical SaaS companies targeting small businesses have seen increased growth over the last several years and we can see that they are constantly seeking ways to enhance their value proposition and boost revenue. One often overlooked opportunity lies in truly addressing a key pain point for SMBs: accounting.

The Accounting Conundrum for SMBs

Year over year, SMBs are allocating a substantial portion of their resources to accounting — a vital component that keeps their businesses running. While essential, this expenditure represents a significant drain on their revenue, especially considering the mismatch between the cost and the technology available to them.

The data above underscores the financial burden that accounting places on SMBs, highlighting a clear opportunity for vertical SaaS providers to step in and offer a more cost-effective, integrated solution through embedded accounting.

The ARPU Challenge in Vertical SaaS

Average Revenue Per User (ARPU) is a metric that often reveals underlying issues in pricing and value proposition. While many vertical SaaS companies targeting SMBs are experiencing impressive growth, a closer look reveals a potential issue: new subscribers are coming in, and revenue is growing, but ARPU remains flat. According to Paddle, this stagnation in ARPU might indicate that your product is underpriced relative to the value it provides.

This situation presents a significant opportunity to increase your ARPU by offering a "product that's driving a better value ratio." Embedded accounting is one such feature that can justify higher pricing tiers and drive ARPU growth.

Embedded Accounting: A Strategic Solution

Today, SMBs are increasingly seeking unified, cohesive platforms to manage their day-to-day operations. The absence of integrated accounting functionality in their primary business platform creates a tedious hassle. In fact, research shows that:

• Nearly 6 in 10 SMBs complain that their accounting functions are manual and labor-intensive.
• Between 30% and 42% report that their accounting processes are untimely.
• Roughly a quarter say their accounting functions are inaccurate.
• About 1 in 5 state that their accounting functions are not well integrated with other financial processes.

These statistics highlight the pressing need for a more streamlined, integrated accounting solution within vertical SaaS platforms.When it comes to implementing accounting features into your platform, you have several options:

1. Build: Develop your own accounting solution from scratch.
2. Buy: Acquire a company that already provides the accounting features you need.
3. Partner: Integrate with a third-party accounting partner.
4. Embed: Implement accounting functionalities through an API.

Embedding an accounting API often proves to be the most efficient choice in terms of resources, customization capabilities, and scalability. Embedded accounting addresses the pressing need for a more streamlined, integrated accounting solution within vertical SaaS platforms.The Impact of Embedded Accounting on ARPUTo understand the potential impact of embedded accounting on your ARPU, let's examine the calculation:ARPU = Total Revenue / Number of UsersBy integrating accounting features, you can justify a higher price point for your service, directly impacting the "Total Revenue" part of this equation. Moreover, the added value may attract more users, potentially increasing both components of the ARPU calculation.According to research by a16z, integrating fintech features (including accounting) into SaaS businesses can increase revenue per customer by 2-5 times. This dramatic increase stems from several factors, including the ability to offer higher-tier subscriptions, reduced churn, and new upselling opportunities.Long-Term Benefits of Embedded Accounting for Vertical SaaS MetricsBeyond the immediate ARPU boost, embedded accounting offers several long-term advantages that positively impact other important vertical SaaS metrics:

1. Reduced Churn Through Improved SMB Survival Rates: By providing better financial management tools, you help your SMB clients stay afloat and grow.
2. Improved Customer Retention: A more comprehensive, all-in-one platform reduces reasons for customers to look elsewhere, directly improving your retention rates.
3. Higher Customer Lifetime Value: As businesses grow with your platform, their usage and subscription levels are likely to increase, boosting the overall lifetime value of each customer.‍
4. Enhanced Net Revenue Retention: By providing essential financial management tools, you help your SMB clients grow, which in turn can lead to expanded usage and higher-tier subscriptions over time.

Embedded Accounting: The Future of Vertical SaaSFor vertical SaaS companies, embedded accounting represents a natural evolution in providing value to customers. It addresses a critical need for SMBs while opening up new revenue streams and strengthening your market position.By offering a unified platform that includes robust accounting features, you not only solve a major pain point for your users but also position your product as an indispensable tool for business success. This added value justifies higher pricing tiers and can significantly boost your ARPU.