Payroll Processing is actually very simple to understand. In this blog post I will outline the definition and the value proposition for the service and the costs. Today you will learn how to sell payroll processing. In tomorrow’s post, I will outline the various forms of compensation and explain how much you can make selling payroll services. Let’s start with a simple definition: Payroll Processing is a service which allows companies of all sizes to outsource paying employees and filing employment tax returns. There is certainly more to it than that, but this is the basic definition. Keep reading to learn more.
Let’s say you have a client with three pizza shops. At each pizza shop, there are two shifts with three people on each shift, as well as five drivers. Once you add in a few part-time people, each location probably has fifteen employees. This means a three location pizza shop might have a total of forty-five employees.
The business has installed some type of system to allow employees to clock in and clock out. Each employee has also been assigned an hourly wage. Every week someone has to look at the total number of hours worked, multiply that by the hourly wage, withhold the correct amount of taxes, and send a direct deposit to each employee while also making the pay stubs available to the employees.
This process is so time consuming that even the largest companies outsource it to the professionals. Every county, not to mention each state and even each city, has specific tax requirements. Staying up on all the regulations, local, state and federal tax laws is truly a job for a company who specializes in processing payroll and has the advanced systems to process payroll taxes correctly.
There are three primary types of fees that your client would have to pay to outsource payroll processing.
#1 – Base Rate. This is the rate charged every time your client runs payroll, regardless of how many employees the client may have. This fee ranges from $30.00 to $60.00 and is primarily a function of how often payroll is run. If your client pays employees weekly, there will be a lower base rate. On the other hand, the base rate is higher for twice monthly payroll.
#2 – Per Employee Fees. In addition to the base rate, your clients will pay a fee for each employee on each payroll run. This is a very small fee in the range of $2.00 to $4.00. This is where you will have some pricing flexibility based on the number of employees and their current rates. Of course, we will do the cost comparison for you to help you understand our value proposition.
#3 – Filing Fees. These are fees for filing the required tax returns on behalf of the employer to complete tax filing requirements for the IRS. These fees vary all over the place. However, in this area we are much, much better than our competition and offer fees well below the industry average. In fact, we have simply eliminated many of these fees. Some of our competitors also offer HR and many other services, but we have found our target market isn’t as interested in these services. So we keep it simple.
There are three types of competitors you will face in this market. l will outline each of them below and give you an idea of what you will face in the market place.
#1 – Large competitors such as ADP and Paychex. These competitors control 70%+ of the market for payroll processing. Almost all businesses with 20+ employees are using a payroll processing service of some kind. The overwhelming majority use ADP or PayChex. Our pitch here is simple: we are cheaper, and our service is much more personalized. We assign a single support rep to each client so that the rep gets to know his or her clients personally.
Keep in mind that while a service like Merchant Services or Web Design requires very minimal ongoing contact, payroll processing companies get multiple calls every month from every client. This is because things change all the time. The client may have given one of the employees a raise or decided to provide an extra day of holiday pay. These types of changes must be communicated to the payroll processing company. So having responsive services is a must; this is an area where we shine! It also doesn’t hurt that we are 20% cheaper than ADP on average.
#2 – Accountants / CPA’s – Some businesses, especially those with ten to thirty employees, tend to use their accountant or CPA. They enjoy having one person handle their business finances, tax returns, and payroll processing.
This is a tough pitch. Fortunately the vast majority of the market uses option #1. This objection is very similar to selling merchant services when someone already has a POS System in place. Getting the person to use a different merchant services provider is very difficult, but usually the person is paying way too much money. That is also the case with payroll processing when businesses are using their CPA or Accountant.
Honestly, our primary strategy is to let ADP and Paychex do most of the “heavy lifting” (to convince small business owners to stop using their CPA / Accountant.) Then we come in and take away those accounts by offering lower rates. So if someone is using an accountant or CPA, offer to do a cost comparison but recognize this will be a pretty tough sale. You might instead switch gears to go back to merchant services or web design.
#3 – “I do it myself” – These are much easier to overcome than the CPA / Accountant businesses, but you might want to rethink your target market if you are hearing this a lot. Usually very small businesses with less than ten employees are still doing the payroll themselves or using a self service option like QuickBooks Payroll. This is not the right market to go after initially for payroll processing. I would start with merchant services or web design. Then up-sell to payroll processing down the road for these smaller businesses.
That being said, this is a fairly easy objection to overcome. Simply have a discussion with the business owner about the value of his or her time. Get a feel for how much time the owner is spending on payroll processing. A business with five employees would pay less than $200 per month or $50 per week to have this done for him or her. For a small business owner to tell me payroll related issues are taking three or four hours per week is not uncommon.
This is a no brainer. Business owners need to outsource this task to the professionals to save them time and, also, to protect them against mistakes in tax filing which could cost thousands down the road or even potentially put them out of business.
Payroll Processing is a great service and is really very easy to sell once you get the hang of it. I recommend you start out pitching payroll processing first to any prospects who have twenty or more employees as a way to differentiate and hopefully save them some money! Also, as you will learn in the next post, this will be a way for you to make a large up-front bonus and set yourself up perfectly for future revenue and up-sells.
Have a great day!
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