By Seth Fineberg
Palo Alto, Calif. — At a time when the idea of processing all payroll and related functions online is gaining acceptance among small businesses and their accountants, several companies outside of the big payroll processing centers are competing for their attention.
Within that arena, PayCycle has positioned itself as a low-cost solution of choice, and a growing number of accountants are becoming converts and preachers.
It may not be the best for larger firms or businesses looking for a full-service payroll provider, but those are not PayCycle’s market. Instead, the company is getting noticed by sole practitioners and small accounting firms looking to save money for clients where they can and remain profitable themselves by offering an economical payroll service.
PayCycle at a glance
Accountants, particularly smaller firms, have typically shied away from payroll due to the time involved and the ever-changing regulatory requirements in the process.In 1999, co-founders René Lacerte and Martin Gates left small business accounting giant Intuit with the simple idea of offering a low-cost, self-service payroll solution for small businesses and accounting firms. Today the 50-person company has over 14,000 customers using its products and services, a growing number of whom are accountants, according to Lacerte.
“All we wanted to be [when we left Intuit] was the de facto standard for small businesses when it comes to payroll at the lowest price point with dramatically increased customer service,” Lacerte said. “Last year, we only had 3,000 customers and word of mouth has really contributed to our significant growth.”
It has also helped that PayCycle has maintained good relations with Intuit, as PayCycle is the self-service payroll function for QuickBooks Online users. In addition, it has a partnership with Microsoft as the online payroll solution for its Microsoft Money Small Business edition product.
Other relationships have also helped PayCycle, in ways it did not initially intend. For example, PayCycle used to be the payroll product for the Payroll Relief service of AccountantsWorld.
It was not promoted as such by AccountantsWorld, but when PayCycle’s contract with the company ran out, many accountants, including Edgar Madsen of the Bloomington, Minn.-based firm Quist Madsen and Co., liked the service so much that they did not want to switch from PayCycle.
“When I heard the contract was running out, I contacted AccountantsWorld and found out who the vendor was. I had never heard of PayCycle before that, but I’ve enjoyed the service so much I wasn’t going to switch,” Madsen said. “We wanted something to do our own payroll and had clients asking us about it also. We quickly found out how easy using PayCycle was and thought we could do this for our clients and make money at it.”
Madsen noted that within two months of using PayCycle, his firm has started to see income. “We had been using pen and paper and then spreadsheets to do payroll, but with their pricing per client and how efficient we now are in processing, we are able to see a return.”
The company has four main products, including a 1099 product, as well as those specific to households, small businesses and accountants. Most start around $19.99 a month and include a one-month free trial. The accountant product, known as the PayCycle Accountant Wholesale Service, is $10 per client per month, and has served as the initial attraction for sole practitioners and small firms. PayCycle primarily targets companies with up to 10 employees, and accounting firms with from one to five employees and 500 clients or less.
The company touts itself as the only online payroll service available for use in all 50 states, although its electronic payment service is not yet available throughout the country. Even so, its pricing and availability are not PayCycle’s only distinguishing factors.
“Our exceptional customer service is really a key factor for us. You will get a person within 30 seconds and the highest level of service from them,” Lacerte said. “Price is always attractive, but oftentimes customers are surprised at our ease of use and customer service. I think they would even pay more for our level of service.”
It is these traits that Lacerte said distinguish PayCycle from its competitors, which primarily consist of ADP, Paychex and, to a degree, PayMaxx and Intuit. Lacerte admitted, however, that most of his clients would not use a full service like the ones the established payroll bureaus and others offer. He also said that many of his CPA customers are finding that they are able to find additional revenue streams through offering low-cost payroll.
Charles Ross, a sole practitioner from McKinney, Texas, had been searching the Web for an online payroll solution when he ran across PayCycle a year ago. He now processes payroll for himself and his clients, including their W2s and 1099s. But Ross found that he is able to do more than just payroll work by simply stating that he offers it.
“Say I’m looking for write-up work, I find it easier for a client to listen to me when I say I do payroll as well. I may not make a lot of money on the payroll but I am getting other work from it,” Ross said. “If you are a small CPA firm, this is definitely the way to go. I don’t think I’d offer payroll services to my clients if it weren’t for them.”
As for new initiatives, PayCycle is current beta-testing a MICR check printing function so that accountants don’t have to maintain multiple check stocks for their clients. Ross is one of several firms trying out the service.
PayCycle may not have net profitability yet, but Lacerte feels that given the company’s two- and three-fold growth rate over the past couple of years, it is not far off. He also believes that, in terms of gross margins, considering their research and development spending, the company is “quite profitable.”
PayCycle is also looking to create a formal accountants advisory council in the near future, but Lacerte says that the company’s greatest challenge is not a large “liquidity event.”
Said Lacerte, “Our biggest challenge is getting the name out there, and we are going to be doing more advertising and marketing targeting the accounting profession. We are doing more trade shows, but word of mouth is still the most important asset to us.”
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