10 Ways to Grow without Building More Software Applications

About 15 years ago, Marc Andreessen famously commented that software is eating the world.  It is more true than ever today.  In fact, I would argue that you could add another word to that sentence to say it’s not just “software,” but “software companies” that are eating the world.

Software companies aren’t just selling software anymore.  They are making money by selling payments, financing, payroll, bank accounts, loans, insurance, and advertising products.

For example, take the corporate travel and expense company Navan, which debuted on the NASDAQ last week in its IPO.  Navan triple (or quadruple) monetizes each transaction.  Each time a customer books a trip, the company earns money from

Many of their customers also pay (4) subscription fees for Navan’s expense reporting software, which is a fourth stream.  And they could probably add on even more layers for each transaction if they expanded into (5) digital ads for the traveler’s destination in the mobile app or website and (6) travel insurance to protect against unexpected cancellations or international medical emergencies.

Historically, SaaS companies have generated revenues primarily from their core tech offerings like software, maintenance, professional services, customer support, and training.  A few have expanded into offering hardware and networking as well.

If a company needed to grow faster, it would build more software applications to sell.  If the flagship product focused on recruiting, the company would build a new app to sell into other parts of HR. Think compensation or performance management.  But today, there are many alternative growth vectors.

Shopify, Toast, Intuit, and Housecall Pro are examples of larger SaaS companies that utilize alternative growth vectors to monetize customer relationships through non-software products.

There was a lot of buzz about these ideas in the context of “embedded finance” and “vertical SaaS,” back in 2022 and 2023, but it’s gotten lost in the “AI is eating the world’s attention” era. But these alternative monetization strategies are continuing to gain momentum even with all the product investments in AI. At Ordway – Billing and Revenue Automation, we work with a lot of early/growth-stage tech companies, so we get exposed to a lot of these new business models in our sales cycles.  Below, I’ll share 10 of the most common alternative monetization strategies that we have seen B2B SaaS companies exploring over the past five years.

Payments

Payments are the most widely adopted non-software product offered. Apple, Google, Amazon, Samsung, and Meta (Facebook) introduced digital wallets and payment services to their customers over a decade ago. B2B SaaS companies have followed in their footsteps. Shopify, Intuit, Toast, Olo, Lightspeed, Wix, SquareSpace, Clio, and a few hundred others now capture a share of the payment processing fees for credit card transactions originating on their platforms.

There’s a lot of good information out there about how SaaS companies are generating revenue from payments, so I won’t go into much detail on it. Instead, let’s focus on the other alternative monetization vectors in areas like payroll, supply chain, and marketplaces.

Employee Benefits

1) Payroll and Benefits

Since it was first automated by computers in the 1950s, payroll has essentially been a software business. ADP, Dayforce (Ceridian), Paycom, and Paylocity have been the market leaders over the past decade. However, they are facing a growing level of competition from all angles. There is big money in payroll – almost $10 billion per year, which has attracted fast-growing, venture-backed startups such as Deel ($1 billion ARR), Rippling, and Justworks. Finance and HR SaaS players such as Zoho and QuickBooks (Intuit) have launched payroll offerings as well.

Vertical SaaS companies such as Toast, ServiceTitan, Wrapbook, HomeBase, Zenoti, and Lightspeed also offer payroll. These vertical SaaS companies are taking a different approach, however. Instead of selling payroll as an add-on for $4-6 per employee, per month, vertical SaaS companies are bundling payroll into their core plans. The bundling strategy changes buyer psychology, forcing customers to ask – If payroll is included in the software package I am already paying for, why use a different payroll provider for $5 per employee per month?

The emergence of “embedded payroll” offerings has made it easier than ever to offer payroll services to customers. Check, Gusto, and Salsa offer all the infrastructure, APIs, and “brandable” user interfaces needed to launch a payroll offering.  Embedded payroll platforms reduce time-to-market. SaaS companies don’t have to build their own products and become experts in all the regulations governing withholdings and taxes in different states and municipalities.

Payroll is strategic because it creates a direct relationship with the entire employee base.  Once you have the full org chart as registered users, you can begin to introduce more value-added services.  A good example is employee benefits, which are a natural upsell.  Examples include medical and dental plans, HSAs and FSAs, short-term and long-term disability insurance. Gusto and Worklio offer “embedded benefits administration” platforms that make it easy for SaaS companies to add capabilities for open enrollment, new hire onboarding, ACA and COBRA administration.

Intuit’s QuickBooks payroll plans come bundled with employee benefits, including healthcare plans backed by Allstate, 401(k) retirement plans backed by Guideline, and workers’ compensation backed by NEXT. This is a great example of quintuple monetization! Intuit collects 1) a monthly subscription fee for QuickBooks, 2) a per-employee-per-month fee for payroll, 3) an add-on fee for workers’ compensation, 4) a revenue share of the healthcare premiums from Allstate, and 5) a referral commission for each 401(k) registrant from Guideline.

And that’s not all!  They can layer on one more service for payroll customers called On-Demand Pay (#6).

2) Early Pay

On-Demand Pay, formally known as earned wage access, offers employees access to money they have earned but haven’t been paid for yet.  These early pay programs are popular in industries such as retail, with lots of hourly employees who often need access to pay immediately.

Zenoti is an example of a SaaS company that offers early pay on top of payroll.  Zenoti focuses on beauty salons, barber shops, and fitness centers with an end-to-end suite of applications ranging from sales and marketing to HR and finance. Zenoti’s early pay offer enables its customers to give their employees early access to both wages and tips.  Employees get a debit card and a digital wallet in Zenoti’s mobile app that they can use to make purchases.

Most of the SaaS vendors offering these early pay programs do not charge a fee to their customer (the employer). Instead, they make their money behind the scenes: when employees make purchases, the SaaS company collects a share of the payment processing fees.

Banking and Loans

3) Interest Income

Another way SaaS companies can make money behind the scenes is by generating interest income from cash being held temporarily while it is being transferred from the customer’s account to the payee. For example, with payroll, there is typically one to two days between a payroll provider debiting their business customer’s account and the funds hitting the employee’s account – the “float” period.

ADP, one of the largest payroll software companies, holds approximately $20 billion to $25 billion of its customers’ funds at any given time while the money is in transit from the employer’s bank account to the employees.  It puts those funds into low-risk, short-term investments that generate a small amount of interest.  But the sheer volume of funds being managed results in an additional $350-$550M of interest revenue per year.

The opportunity isn’t limited to payroll.  Interest income can be earned from any type of fund transfers, including B2B payments, government taxes, retirement distributions, and insurance payouts.  For example, Bill generates 11% of its revenues, over $160M, from its “float revenue” on B2B payments.  Avalara generates interest from funds they hold when making tax payments to government agencies on behalf of their customers.

4) Bank Accounts

Earning interest from the float on payments and payroll is interesting, but it is really just the tip of the iceberg.  Why limit yourself to holding just a small part of a company’s cash (payroll and payments) for just a few days per month?  Why not hold all the cash for the entire month?

That’s exactly what a number of the bigger SaaS companies are doing with business banking products. Ramp, Brex, Shopify, and Intuit QuickBooks offer bank accounts that enable them to build stronger relationships with customers, generate interest income, and offer value-added services.

SaaS companies have introduced highly differentiated products with features that traditional banks don’t offer, such as high annual percentage yields (APYs) on balances, same-day funds transfers/payments, and low-fee/no-fee pricing structures.  Some are moving beyond just bank accounts into investments.  For example, Ramp offers business investment accounts to its customers, which offer higher yields, next-day liquidity, and low-fee/no-fee pricing for many transactions.

Ramp is able to pursue a triple-monetization strategy by owning the procure-to-pay cycle for its customers, generating revenue from 1) monthly subscription fees for software applications (expense reporting, procurement, accounts payable, etc.), 2) transaction revenue from payments, and 3) fees generated from their customers’ banking and investment accounts.

5) Lending and Loans

Owning a customer’s business bank accounts is another foundational strategy.  While some fees can be generated from business banking, there are richer profits to be made from offering working capital and short-term loans to customers.

Mindbody, Shopify, Intuit, and Toastare examples of SaaS companies that offer lending products.  Toast, for example, offers its small business customers working capital loans to purchase inventory, equipment, and technology needed to run their businesses.  Loans range in size from $5,000 to $300,000 with 90, 270, and 360-day repayment terms.

SaaS companies with accounting applications are the best positioned to offer lending products because they have access to all of the customers’ financials.  When you own the general ledger, you have visibility to the P&L, the balance sheet, and all the cash flows – receivables from customers and the payables to suppliers.  That’s an unparalleled set of data that can be used to assess credit risk and underwrite the loan.

There is also a lot of synergy between lending and payments. SaaS companies that collect payments are well-positioned to service the loans as well.  They can simply deduct a small percentage of the collections received each day for repayment.  Toast collects a different amount each day based on its customers’ performance and actual sales.

Toast has inserted itself in the middle of its customers’ money flows. As a result, the company is able to pursue at least six different monetization vectors:

They could easily add banking accounts to get to seven.

Partners and Developers

Another alternative revenue strategy is to monetize relationships with developers and business partners.  Many of the fastest-growing SaaS companies are able to outperform their competitors because they have built a strong ecosystem of partners that help accelerate customer adoption.  Developers build feature extensions to cover functionality gaps.  Consulting firms offer services to help implement, deploy, and customize the software to meet customer-specific business needs.

Developers and partners can make a lot of money from being part of the SaaS provider’s ecosystem.  SaaS companies can take a cut of the fees they are helping partners generate and effectively monetize these relationships.

6) App Stores

One good example is hosting an app store.  SaaS companies like Atlassian, Salesforce, and Zoom use a revenue share model to collect fees for apps sold on their marketplaces.  The business model is similar to the one Apple uses for its App Store, except that the fees charged by SaaS companies are generally much lower.  Developers who sell through the Salesforce AppExchange share 15% of their revenues with Salesforce. Freshworks has a slightly higher take rate of 20%. Atlassian’s percentage has been increasing over the past few years from 15% to 25%.

A surprisingly low number of SaaS companies actually offer developers the ability to sell their products on an app store.  Most SaaS platforms only offer free apps.  Paid products can be listed on the app store, but if the customer wants to purchase them, they must go to the developer’s website to purchase.

By introducing an e-commerce framework to the app marketplace, SaaS providers can enable customers to select paid apps, add them to a shopping cart, and then make a payment on checkout.

Apps can be sold as a one-time, perpetual license fee or as a subscription with recurring billing.  In this model, the SaaS platform owns the customer relationship and handles billing, allowing it to easily extract a 10-20% revenue share fee from each payment.

7) Affiliate Referral Programs

App stores aren’t the only way to monetize partner relationships.  There is a lot of money to be made from sending leads to business partners – especially if they are other SaaS companies (versus consulting firms).  There is big money in lead referrals.  B2C companies, such as Credit Karma (owned by Intuit) and NerdWallet, generate most of their revenue by sending referrals (leads) to banks for credit cards, auto loans, and mortgages.

These types of “affiliate marketing” programs have grown popular in B2B SaaS over the past 10 years. A large number of smaller SaaS companies have a formal, structured program, which pays out one-time or recurring fees for leads or wins from partners.

Affiliate marketing programs work by embedding a special trackable, referral link on your website.  As your users click on links to the partner’s site, the referral traffic is tracked automatically.  When a referred user converts into a lead or a win, you earn a commission payout.  Once the referral links are set up, the revenue generation process is almost effortless.

Although these types of affiliate marketing relationships are widely implemented, most SaaS companies don’t talk much about the revenues generated from them.  There are a few examples of public companies that disclose referral revenues in their filings.  Shopify is a good example.  The e-commerce leader generates one-time fees by sending leads to partners in their ecosystem.  If the lead becomes a customer, the partner will pay a recurring fee for the lifetime of the relationship. MeridianLink, a vertical SaaS company that sells to banks, credit unions, and mortgage lenders, also generates revenue from referral agreements with its partners.

8) Procurement and Supply Chain

A handful of SaaS companies have started to develop bulk purchasing models.  They aggregate the buying power of their collective customer base and use it to negotiate volume discounts with major suppliers.

Slice is a good example.  Slice is a vertical SaaS company that provides all the tech you need to run a pizza restaurant, including point-of-sale hardware, online order capture, and payment processing. Slice also offers supplies to its customers for highly commoditized items such as cardboard pizza boxes.  They are aggregating the buying power of thousands of different pizza owners that use their software to negotiate bulk discounts on pizza boxes, paper bags, and grease liners.

These types of bulk procurement arrangements are typically handled by specialized companies called group purchasing organizations (GPOs).  The model works best with commoditized goods and services that are common across a large group of buyers, like cardboard pizza boxes.  The GPO typically takes 2-3 percent of the purchase value as a fee in exchange for its services.

9) B2B Marketplaces

Another way B2B SaaS companies can monetize procurement is through marketplaces. B2B marketplaces match corporate buyers with potential suppliers willing to bid competitively to win the business.  Upwork and Fivrr are examples of marketplaces that match corporate buyers with independent freelancers in categories such as graphic design and web development.  SaaS companies whose primary business is offering applications can add these types of marketplaces to their platform as a secondary monetization strategy.  For example, E2open, a SaaS company with a suite of supply chain applications, has a carrier marketplace where it matches its customers (manufacturers) with transportation providers that can ship their goods.  The model is similar to Convoy and Uber Freight.

Ply is another example of a SaaS company that uses marketplaces as a secondary monetization strategy. Ply sells purchasing and inventory management software to SMBs in the electrical, plumbing, and HVAC sectors.  One of its services is acting as a matchmaker to connect buyers and sellers.  Buyers can post electronic RFQs, and Ply will find suppliers on its marketplace who will enter competitive bids in hopes of winning the purchase order. The SaaS company collects 0.2-2.5% of the purchase price as a fee for using the marketplace.

Transaction fees are not the only way to monetize a B2B marketplace.  Advertising is another option. Cvent is an example of a SaaS provider that uses advertising to generate revenue on its marketplace.  The company’s primary product line is a suite of applications that enable businesses to plan and manage corporate events such as customer conferences and sales kickoffs.  It also offers a supplier network that buyers can use to discover hotel properties and event venues. Suppliers can pay Cvent to run ads that place their listings prominently in search engine results, email newsletters, and the company blog.

Insurance

10) Property & Casualty Insurance

Insurance is another potentially massive opportunity for SaaS companies.  Online distribution of insurance products has exploded in recent years with the introduction of embedded offerings from providers like NEXT.  It has gotten strong traction in B2C markets. You’ve probably noticed that every time you purchase an airline flight, you are also presented with an offer to buy travel insurance for the trip.  And every time you purchase a new computer or electronic device, the retailer tries to sell you an extended warranty.  These are examples of embedded insurance.

Much like with payments, payroll, and banking, embedded insurance offerings can be easily rebranded and sold by B2B SaaS companies alongside their core offerings.  For example, Appfolio offers FolioGuard Renters Insurance to tenants (end-customers) who want to protect their personal belongings (furniture, electronics) from unexpected damage. Descartes offers shipping insuranceto reimburse customers for lost, damaged, or stolen parcels and less-than-truckload (LTL) shipments.  ShipRush will provide reimbursement for the full sale price with no deductible on most goods.

Employee benefits are another example of an insurance offering. Earlier, we discussed how SaaS companies such as Intuit are bundling health insurance and workers’ compensation into its payroll offering to boost its per-employee-per-month revenue.

It’s still early days for insurance in the B2B SaaS sector. Many companies are still experimenting with the model, trying to find the best approach. For example, Blend Labs, a vertical SaaS company in the mortgage processing space, owned a title insurance business licensed in 43 states. However, Blend recently sold the insurance carrier to Covius.

Procore, a vertical SaaS company focused on the construction industry, launched an insurance offering in 2023 called Risk Advisors. It sold policies for Builders Risk, General Liability Wrap-Up, and Excess Liability. However, the company shut it down in 2024.