SM: Financial institutions seem like a great distribution channel for small business payroll.
JH: I think the distribution strategy is to be where people are likely to buy payroll. Be on the web, be at retail, be at the accountant, and be at the banks.
SM: You do the tax portion as well. How about 401K?
JH: We connect to 401K programs if you have one, but we do not have our own. Most payroll companies at some point get into add-on services, and that is something we are looking at. We just passed 50,000 customers this year, which is pretty exciting.
SM: What does that translate into in terms of revenue?
JH: Our brand of product is about $43 a month, or about $500 a year. It is equivalent to what you would get from ADP or PayChex at about 1/3 of the cost. We average about 5 employees.
SM: The fee is for all of the employees, no per-employee fee?
JH: Exactly. We have tried to make this as easy as possible; easy to use, easy to manage, easy to get support, and easy to buy. Part of what makes it easy to buy is to make it very simple to understand the cost. Normally you get a quote for a payroll period, so if you pay twice a month you will pay double the quote every month. Ours is a flat monthly fee for up to five employees and a small fee once you pass that level. We don’t charge you for W2s or all of this add-on stuff.
SM: I have used PayChex for the most part of my entrepreneurial activities. Right now I am using all contractors.
JH: That brings up another service. We have a great 1099 service which you can use at the end of the year for a flat $40.
SM: You have 50,000 customers. Where are you in terms of revenue?
JH: If you do the math, it puts us in the mid teens. That is up from $4M when I got here in 2005.
SM: When you look at the 5.2 M employers, how do you feel you are positioned? How does that split between Intuit, ADP, PayChex?
JH: The traditional payroll players are ADP and PayChex, and there are a whole host of little ones. Together, they have about 800,000 small businesses signed up on their various services. ADP and PayChex are not really embracing the web. Intuit is. We are completely a web-based play.