Payroll Provider Market Share Protection

How Can Payroll Service Providers Protect Market Share?

If you’re a small- or mid-sized payroll service bureau, then you are under siege. It’s not a surprise assault, but rather a slow, stealthy adversary that creeps into your market, much like an ominous freighter on the sea’s horizon. You can see it coming, but have no control over its course and the subsequent impact on your own existence. In fact, your only hope is to proactively launch a counter attack and build up your own clients’ and prospects’ resistance to the wares it is peddling.

So who is your antagonist in this nefarious, naval metaphor?  If you don’t already know, then you will soon, as it’s inevitable that the larger national payroll providers (e.g. ADP, Paychex, Ceridian, Paycom and Paylocity) will begin to make waves in your pond. But they aren’t your only potential foe, as recent newbie market disruptors such as Zenefits, Namely and Gusto (formerly ZenPayroll) carry a new kind of threat as well.

In this blog, we’ll take a closer look at how your competition is leveraging its strengths to recede your market share. Then, later on in this blog series we’ll examine your opportunities for positioning your business as an attractive alternative to the creeping payroll software providers.

National Payroll Provider Creeper AlertBeware of the Creepers

Of course your competitors aren’t as dangerous as the “creepers” in the video game of Minecraft; however, you don’t want to launch an offensive while unarmed, lest they explode any hopes you have of saving and then gaining new clients. Here’s how you start to sense their presence…perhaps you are a well-respected, service-oriented regional provider that makes sure its customers are more than just one number among many. In fact, your payroll software solution is quite robust and can outperform the payroll functionality of your publicly-traded competitors. Everything is working out well in your market until you start to get creeper-inspired emails like the one below.

Hi Toby,
I hope this message finds you well! I wanted to let you know that in the next month or so, our organization will begin transitioning to a new payroll software platform. Your firm has served us very well to date, but as we look ahead with more aggressive HR department goals, we’re looking for ways to optimize our internal resources, including implementing a system that is designed to bring additional features outside of basic payroll services.

If you are interested in learning more about the specifics of our decision to transition to a new system, I am happy to share more. Again, it’s been a pleasure working with your team over the last few years and we wish you all continued success.

Thanks for your help.

That’s what the email actually said, but perhaps all you glean in your moment of frustration is something like this.

Hi Toby,
Your services aren’t keeping up with the “holistic HR” times, so we need to move to a modern solution that will. You’re great to work with, but not so great that we’ll skip out on the chance to run our HR department more efficiently. Sorry ‘bout ya!

President of the Creeper Fan Club

If you’re still not convinced that your customers are susceptible to the subtle onslaught of new opportunities presented by enterprise-level platforms, then consider the comments noted in the transcripts for Q2 2016 earning calls for both ADP and Paychex.

“In the second quarter, we continued to see very strong demand for our solutions, which is evidenced by our new business bookings growth of 15%. Sales of additional human capital management modules that assist with the Affordable Care Act or ACA compliance continue to contribute meaningfully to this performance, which has exceeded our expectations on a year-to-date basis. As a result, we are now forecasting new business bookings growth of at least 12% for FY16.” Carlos Rodriguez, President and CEO of ADP

“We made good progress across all major product lines during the second quarter. Compared to second quarter of last year, payroll revenue advanced 4% as a result of growth in client base and revenue per check. HRS revenue grew at double-digit rates in the second quarter once again led by our success in selling HR outsourcing solutions to our clients, and total service revenue grew 7%.” Martin Mucci, President and CEO of Paychex

While the above comments encapsulate just one recent quarter’s performance, at a minimum they should spike your adrenaline a bit if it isn’t already pumping. If the major payroll players are seeing notable success in endeavors outside of their original core payroll services, then it’s a certainty that they will continue to pursue them aggressively.

The Lure of Having Features Beyond Plain Ol’ Payroll Software

The economies of scale available to large national software providers have given them the ability to expand their offerings into other verticals complementary to payroll. And while you don’t care if they sell their top of the line platform to Fortune 1000 companies, you do need to be aware of how small business-focused sales teams are luring your local clients away. Here are two tactics involved.

Insurance, PEO and ASO Services

Think about the huge customer lists of the “big boy” providers, coupled with the vast internal resources available. They can train and certify employees to offer additional services, as well as to develop add-on HR systems that complement their payroll application. With staff available to offer insurance benefits and a built-in warm lead flow of clients, it’s no surprise that companies like ADP and Paychex are succeeding in up-selling insurance to existing clients to then fund their efforts to convert new customers by poaching from your pool.

They take it a step further to make a ripple in the small- and medium-sized business (SMB) space, as well, by offering PEO (Professional Employer Organization) and ASO (Administrative Services Organization) services to alleviate the stress felt by companies that are strapped when it comes to internal HR resources. In fact, ADP’s PEO business, ADP TotalSource, is the largest PEO in the United States according to its Q2 2016 earnings call transcript.

You may not want to go near the PEO business with a ten-foot pole; however, you do want to keep your SMB clients from switching their payroll business to a large competitor. However, if that competitor makes the rest of your client’s HR duties easy and all you are bringing to the table is payroll, then you are fighting an uphill battle. Your competitors have the money and resources to make their entire HR services platform top of mind for your clients.

Free HR Software

If I told your clients that I had human resources management software that they could have for free, what would they say? Some might be reluctant because there’s no such thing as a free lunch. However in the case of how Zenefits and Gusto are disrupting the insurance and benefits space, the client would learn that these organizations get paid by becoming the broker of record when they sell insurance to the client. The commission on these transactions more than makes up for the cost associated with giving their clients “lite” HR software for free. It’s no surprise they’ve captured a lion’s share of new customers in the few years since their entrance.

And while Zenefits, in particular, has been momentarily tarnished by the major compliance faux pas of eluding some states’ regulatory requirements for insurance sales, it will likely bounce back as it continues to be supported by major VC money and a new CEO. Plus, rival Gusto has gallivanted into the market without skipping a beat on a similar go-to-market model.

Go With Your Flow, Don’t Fight Against the Tide

It’s not very productive to battle the current that is bringing major competitors into your space, as you can’t control their approach. However, you do have options for bringing additional HR efficiency to your clients and their organizations.

Stay tuned for more details on those opportunities in the next blog in this series. Or, if you can’t wait, contact ExactHire to learn how your payroll service provider organization can partner with us to bring enhanced hiring and onboarding software functionality to your customer base.

HR Software Provider Partnership Guide

Image credits:

North Shore Trip – August 2015 – MV American Integrity at Sunrise by pmarkham (contact)

Tiny Creeper Statue by post-apocalyptic research institute (contact)


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