Payments That Perform: The Key Ingredients for Successfully Scaling Payments in Vertical SaaS

Integrating payments into your Vertical SaaS platform isn’t exactly a novel idea. The strategy is often likened to a simple recipe: with the right mix of control point software, you just add water (payments), and voila, a profitable cake appears. After all, companies like Toast have done it to the tune of $3.2 billion in gross payments revenue in 2023. 

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In fact, the reality is far more complex. 

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If done right, payments can generate a strong stream of revenue, make it easier to layer in other fintech products, and improve core retention. However, relatively few companies have been successful in actually selling payments. Many incumbents, even after years of work, are only hitting 30% penetration.

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In my conversations with vertical SaaS companies who are successfully growing payments business lines and in my role as the COO at Clio, a leading vertical SaaS in legaltech, I have noticed an incredible amount of similarity between companies successfully doing payments. 

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There are three components to a successful payments motion:

1. Managing who sells which product and how it is sold
2. Selecting the right KPIs
3. Clearly articulating your customer value proposition

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Much of the challenge comes from determining whether the software suite or the payments product is the priority. When providing payments+SaaS, it is important to establish the relative strategic priority of each offering and construct your GTM strategy accordingly. There is a wide range of relative value across vertical SaaS players (attach can range from 20% to 90+%) with underlying economics also varying widely based on processing volume and associated net take rate relative to SaaS ARPA. Further, depending on payment mix, payments net take rate can range from as low as 35 bps to over 100 bps, which will be heavily impacted by payment mix (debit, ACH, CC, etc) and pricing strategy. Lastly, it is good to develop a POV as to how impactful integrated payments is to improved retention on SaaS and if so, how much value can be ascribed to that. You can strategically optimize your go-to-market (GTM) approach for SaaS and Payments only after developing a clear perspective on these factors.

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Who and How to Sell

While there's no universal approach, the GTM success of a payments product hinges critically on two key components: team structure and sales strategy.

First, consider your sales force structure. I have seen successful VSaaS companies selling payments with each of the following models:

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• Core Account Executive (AE) team sells payments
• Separate payments sales team specifically for selling payments
• Selling payments through the customer success org

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Second, consider your sales incentives. Companies typically follow one of these models:

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• ‍Treat as a core product: Move payments into the core AE quota, which will drive maximum attach.
• ‍Treat as a SPIFF: This will drive a decent amount of attach, but the issue is it still gets treated like a secondary product to SaaS in this model.
• ‍Treat as an expectation/requirement of the VSaaS solution: Make payments a required component of every sale without additional sales compensation–aiming for 90-100% payments enablement on all sales.

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This first approach often yields maximum attach, but it also introduces a range of considerations. For instance, how can this be made simple for AEs? Should you establish a separate quota for payments, or should you devise a conversion method that translates payment revenue into SaaS equivalent value. Beyond quota structure, you'll need to establish when and how AEs receive credit for payments success. For example, should the crediting mechanism be based on enabling payments, the account beginning to process payments, or the actual Gross Payments Value (GPV) generated over a specific period?

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At Clio, we started with it being in Customer Success, then moved to SPIFF and saw a nice uplift, and are now evaluating moving into core where we would expect another step function improvement. Given our high velocity sales motion and SMB orientation, we optimized for simplicity. Starting the way we did was a great way to minimize friction, get started quickly, and gather data to inform opportunities for improvement. 

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We began with a SPIFF model where the sales team would focus on enablement and we held the onboarding and product teams responsible for activation and driving maximum penetration. We constantly evaluate all aspects of our GTM strategy and we are currently testing a potential shift to making payments part of the core quota and having the crediting mechanism be actual processing of payments vs just enablement. There is give-and-take here (more enablements, but lower processing activation rate vs. higher processing activation rate, but less enablements) and it's important to understand them and decide what you are optimizing for.

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While it's tempting to want to remove all risk and ensure payment is tied to actual GPV generated, this is the most complex model for AEs and requires them to wait up to a year to really understand the value of the payments attach. This can be OK in a lower volume sales model with larger GPV accounts, but in high velocity, high volume GTM models, I recommend pushing to make it as simple and attractive for AEs as possible. Make sure you have accurate tracking to understand the average value of attach relative to quota and then adjust sales incentives as needed. 

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Lastly, after doing a lot of work to drive attach, companies need to develop tactics and strategies to monitor and drive the percentage of a customer’s billings that are actually being processed through the integrated payments offering and use a mixture of PLG/Marketing tactics as well as a Payments Adoption account management-type team to understand any friction. All of this work is done to drive ongoing GPV penetration (payments processed as percentage of total customer billings).

Once you set up the correct team structure, you then need to have the correct measurement system to keep them on track. 

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Measuring Success Through KPIs

In my role as COO at Clio, I oversee Clio’s overall GTM and operational activities, including our Payments business. In practice, my job means looking at the KPIs listed below and figuring out what we could do to move them in the right direction. Some payments key metrics include:

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• ‍Share of Wallet: This can be calculated as the ratio of Gross Payments Value (GPV) to Gross Billings or Gross Merchandise Value (GMV). Of all the revenue your merchant is transacting on, what percentage of that happens on your payments platform? How does this grow over time for the average user? One critical way for companies to grow GPV is not just to grow the number of customers using payments, but increase the penetration utilization rate of folks who do use payments. A higher GPV to GMV ratio means you’re capturing more value for your customers that are using your payments offering.
• ‍Attach Rate: What percentage of customers on your platform are also payments users? You can increase the value of this KPI by slicing your cohorts on the basis of payments volume and time horizon. Do you have specific GTM plays for higher GPV cohorts? This should include specific marketing, product, and/or sales strategies targeting these valuable cohorts. Likewise, cohorting your customers by time horizon will often yield very clear and differing patterns, and lead to great opportunities for targeted GTM plays. 
• ‍Gross Payments Volume (GPV): This is a north star metric measuring the total dollars flowing through your payments solution. You should also be measuring this on an individual merchant basis, average GPV (aGPV). How much GPV is your average merchant doing and how is that trending over time? At the end of the day, almost all payments products are monetized as a percentage of GPV, so your GPV ties directly to your revenue.
• ‍Take Rate: You want to measure the Net BPS that you make on payments products. This number is a mix of agreements that you have with fintech partners, payments mix optimization, and pricing/UI optimization efforts. Founders are always surprised how much higher they can drive this with smart design and marketing strategies. 
• ‍Speed of Attach: For new users, how many days does it take them to make their first transaction on your payments solution? You can also measure other funnel metrics, such as "how many days does it take for them to link their bank account?" Payments is a product that has lots of friction in setting up—pushing your product teams to reduce the time to value via the speed of attach will help overcome this problem. 

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Moving these metrics requires the usual gritty work of growth: new product features to cover gaps and countless A/B testing of messaging, GTM strategies, and marketing channels. Our team spends its days figuring out the best marketing approaches, new customer onboarding journeys, product popups, and more to maximize both the number of customers using the payments platform as well as the share of wallet for those customers.

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Eyes on the Customer (Value Proposition)

A successful payments launch can't just be "hey, we rolled out a new payments offering, you should use it!" There needs to be an element where payments and software are working "better together." Find out what resonates with your customers and what their pain points are as it relates to billing and payments. I’ve seen a handful of customer value props that help sales reps increase conversion. Payment-specific value props include:

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1. Sleek hardware or software improving the client checkout experience: Sometimes you can make the case that having a better checkout experience will actually drive more revenue for the merchant. Examples of this include enabling the merchant to put a client’s card on file, enabling seamless recurring billing, or adding a tipping flow into the checkout process. It can make a material difference for revenue—Shopify’s checkout product has shown a 15% lift in conversion for some merchants.
2. Better accounting and tax reporting: By having all their transaction data in one system, it can be easier for the business owner to have a clear accounting of their business and make tax reporting easier.
3. Lower or more transparent payment rates than competitors: Save your customers money and give them higher certainty on payments costs.
4. Chargeback protection: Chargebacks can be crippling for merchants and can eat into up to 7% of merchant profits. Thus, companies can offer “chargeback protection” features for merchants that adopt their payments solutions. For example, GlossGenius offers chargeback protection on transactions made with a GlossGenius card reader
5. Instant access to funds: By offering an instant withdrawal feature, you can offer value to merchants in the form of faster access to funds than they can get on other payment platforms.
6. Access to fintech expansion product lines: In some cases you can gate access to other valuable products alongside payments. For example, on GlossGenius, to get access to their Lending product, you must first be using their payments product.
7. Social proof or status: Turning using your payments product into a sign of status can be powerful. For example, we have heard anecdotes that merchants are excited to use Square POS solutions because having a Square tablet in their storefront can be a sign of legitimacy and status for their business.

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True Workflow Innovation

Another successful tactic that VSaaS companies can use to drive payment adoption is to innovate on the core workflows of the merchants themselves and focus on entirely new experiences that are only possible by adopting deeply integrated payments.

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This can create a strong product-led pull for adoption of the payments product and it also gives the sales team a powerful tool to overcome cost-related objections.

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Sell, Build, Aim

Payments is a great product, but it will only make a material difference to your company’s success with a strong customer value proposition, correct metrics and incentives, and an operational obsession to continually improve each step of the payments funnel. 

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If you’re looking to scale your sales payments motion, apply here to join our upcoming Chalk Talk session on May 7th.