Paychex Earnings Bring Entire Sector Up and Highlight Importance of a Small Business Strategy

Paychex (Nasdaq:PAYX) announced earnings today that beat Wall Street’s expectations, causing their shares to rise $3.20 (10.6 percent) to $33.22, approaching the stock's 52-week high of $34.69. This news helped boost stock prices and draw positive attention to the entire staffing and payroll industry including payroll processing firms ADP and Ceridian as well as staffing services firms like Labor Ready and Kforce who, like Paychex, primarily sell to small businesses.

Jefferies & Co. analyst Craig Peckham said “I think Paychex set the tone not only by presenting solid numbers but by presenting a solid outlook for the next 12 months….the key point there is that small businesses are thriving."

Paychex has built a billion dollar business by primarily targeting the payroll needs of small business. Just how enormous is the small business marketplace? According to 2000 census data, the top 500 US based employers (ranked by revenue) employed approximately 28 million people. Small business (less than 500 employees) employed 55 million people and the vast majority of US businesses employ between 1 and 9 people – the bulk of the workforce.

So why don’t more HR vendors sell to small business? Distribution is the primary barrier to success in this market as direct sales efforts are prohibitively expensive and inefficient. For this reason, it often makes sense to sell through intermediaries who already have existing relationships with small employers. Intermediaries can be anyone from an employee benefit broker/consultant to a health plan or association (or, payroll vendor). In fact, this is why on HRmarketer.com we assign a “Channel Focus” to all our resources (publications, direct mail lists, events, press release outlets, etc.) to make it easy to target marketing efforts to a unique sales channel.

In a past HRmarketer blog posting called Penetrating Human Capital Sales Channels we outlined seven distinct sales channels for human capital service providers, each of which represents an enormous revenue stream. If you have not read this posting, it's worth a look.

Each sales channel also requires a unique sales strategy, marketing message, and distribution model. In some cases, it requires a different sales team or changes to the product/service being sold in order to meet the unique needs of the respective channel.

The point is that HR vendors should penetrate and derive revenue from at least two sales channels. It makes good business sense as it protects you from the risks associated with a downturn in any one channel. It’s the same reason why it’s not good to rely on any single customer for a majority of your revenue.

At HRmarketer.com, we’ve helped dozens of HR vendors penetrate new sales channels and as a result, all have achieved increased revenue and reduced overall operating risks. As the Paychex earnings announcement highlights, small business is doing a lot better at present than large business so companies with a solid small business strategy are benefiting.

But penetrating multiple sales channels requires that HR suppliers develop and implement a unique marketing and media visibility campaign for each channel they are penetrating. It amazes us at how many human resource suppliers use a one-size-fits-all marketing and media visibility strategy for all sales channels. Let’s face it, while there is some overlap, the publications, events and value propositions that interest a federal government personnel manager are quite different than what interests a Fortune 500 VP of HR.