Paycom Software, Inc. (NYSE: PAYC)
Business in One Sentence
Paycom provides a cloud-based platform for employers to manage employees in areas such as payroll and HR.
Payroll offers talent acquisition, time and labor management, payroll, talent management, and HR management applications through a single platform for human capital management (HCM). Paycom’s platform was developed in-house and does not need to access or integrate with multiple databases. Paycom also collects data (on a single database) which employers can access and analyze in real time.
Company Strategy and Advantage
Paycom employees a Software-as-a-Service delivery model which manages “the entire employment lifecycle” from recruitment to retirement. Paycom provides personalized service to its 10,000+ clients, assigning a trained specialist to work with each client. Paycom’s comprehensive cloud-based HCM solution enables data analytics on a single database. The company has an average annual revenue retention rate of 91% from existing clients for the three years ended December 31, 2013.
Paycom has clients in all 50 states, and the company itself has 30 sales teams in 20 states. The company believes it can expand both in existing markets while adding up to 100 sales teams in the coming years. The company plans on opening 6 to 8 new sales offices over the next two years. International expansion is also a possibility but likely further down the road.
Paycom has a total of 18 additional applications that clients can purchase. In 2013 all of Paycom’s clients, including new clients, utilized on average 5.2 applications. New clients obtained in 2013 utilized an average of 6.2 applications. The company sees an opportunity to boost the number of applications purchased and utilized by each client.
In addition, Paycom aims to target larger clients with over 2,000 employees.
Other Business Details
-- Revenue grew from $57.2 million in 2011 to $107.6 million in 2013, with net income increasing from $1.4 million to $7.7 million over the same period.
-- Paycom can utilize a mobile workforce thanks to the SaaS delivery model.
-- As of 2013, clients with fewer than 50 employees made up 10% of Paycom’s total sales, clients with 50-2,000 employees made up 86%, and clients with more than 2,000 employees only comprised 4% of Paycom’s total sales.
-- In 2013 Paycom stored data for more than 1 million people employed.
-- Paycom’s solutions are sold exclusively through its sales team, which is composed of 218 professionals. Sales professionals go through a four-week training course, after which training/development sessions are held on a weekly basis.
-- Highly competitive market with many varying products and solutions.
-- Requires persistent innovation while retaining (and boosting revenue from) current clients.
-- The company primarily generates sales through its payroll processing application (58% of total sales in 2013, down from 68% in 2011). Future growth is somewhat hinged on Paycom’s success with other applications.
-- Because of its multiple applications under the HCM umbrella, Paycom is competing with a variety of bigger players who have their own specialty (i.e. talent acquisition/management, payroll, time and labor management, etc.).
1. How does Paycom’s platform compare to other HCM platforms on the market?
2. Why the new focus on larger clients, when the company has done so well acquiring mid-sized clients?
3. How do retention rates compare among small, mid-sized, and large clients?
4. Does Paycom have any proprietary advantage over other competitors?
Questions and input always welcome!
David K [more]