Small Business BuyerView | 2014
At Software Advice, we speak to prospective buyers from thousands of companies each year who are looking for new solutions for payroll software. Most are from small businesses (those with annual revenues of $100 million or less), which gives us unrivaled insight into these buyers’ reasons for purchasing new software.
We recently analyzed a random sample of 385 of these interactions taken from 2014. By focusing on these small-business buyers, we were able to learn their pain points and what features and functionality they want most in new software. This report outlines the trends we uncovered.
The vast majority of buyers were looking to replace their current commercial payroll solution. Thirty-seven percent of buyers noted they were using some unspecified form of commercial payroll software. And another 19 percent of buyers specified that they were using ADP: a specific commercial payroll software provider that also offers an outsourced payroll service.
When compared with other software markets, this is unusual. Often, small businesses are looking to replace the manual methods they have in place for HR functions, such as recruiting or performance reviews. But when it comes to payroll, most small businesses are already using some form of software.
James Merlini, president of WorkPerks Inc, a payroll software firm, points out that one of the main reasons for this is that payroll is “such a complicated part of the business … The tax liability and the complexity of it drives many small-business owners to reach for help."
As a bit of background, many HR software solutions are comprised of various modules, such as payroll, benefits administration, performance reviews and applicant tracking. This is called an “integrated suite.” On the other hand, some software vendors will offer only one module that performs only one specific HR function very well. These are called “best-of-breed” solutions.
In this report, the great majority of buyers noted they would like their payroll software solution to be included as part of an integrated software suite—meaning they would like to have payroll in addition to other HR modules.
Merlini says that small-business buyers’ preference for integrated suites is likely due to the added ease and convenience afforded by this model. Many companies will need multiple human resources applications—including payroll, performance reviews and applicant tracking—so ensuring that all these applications are able to communicate with one another from the beginning can save administrative headaches down the line.
And as many companies have employees working from multiple locations, integrated suites are particularly convenient.
As Merlini says, "Having a seamless technology system allows people to communicate across various platforms to execute reviews, perform enrollments and alter pay and benefit information, from any workstation.”
The most common reason buyers provided for seeking a new payroll software solution was to increase organization and efficiency in their business, with 31 percent noting this was the case.
The next most common reason: needing additional features or services. Many buyers were already using some form of commercial payroll software, but either their current system did not perform the operations required to process their payroll smoothly and efficiently, or they were unhappy with the software’s customer service.
For instance, many buyers (20 percent) noted they would like to have more robust features: reporting and integration with different HR software modules, in particular.
As one buyer noted, their current system was “not flexible or customizable enough, [and] the separate systems don't communicate very well with each other.”
As you can see, many of buyers’ pain points had to do with how their current software functioned—12 percent noted that their current system didn’t support growth, while 6 percent said their current software was too complex.
Additionally, 6 percent of buyers noted that one of their reasons for replacing their current software was poor customer support. Merlini points out that the prevalence of buyers seeking better customer service may be largely due to the maturity of the payroll market.
As he says, when a market matures, “you typically have a couple companies that have a lion’s share of the business. The remainder of the industry is forced to focus on differentiating themselves to capture market share. One of the best ways to do this is to focus on your service offerings.”
When it came to the particular features buyers requested, the most sought-after were reporting and self-service, specified by 33 and 31 percent of buyers, respectively. The next most popular features were 401k and insurance tracking (8 percent of buyers), followed by direct deposit (6 percent).
Well over half of all payroll software buyers noted that they would prefer their new software purchase be a Web-based system. As one-third of buyers noted that employee self-service through an online portal was a preferred feature, this makes sense—in order for employees to be able to access the software through an employee portal, they need to be able to log in through an Internet browser.
The Web-based deployment model is best for meeting this need, as this type of software can be accessed from any device with an Internet connection. In contrast, with an on-premise deployment method, users must use specific devices that house the software, which severely limits employee accessibility.
This preference for Web-based software is pervasive in the broader HR software market. When it comes to payroll administration, however, this preference is due to the fact that a need for safety and security is a particular concern.
As Merlini points out, if a small business has an on-premise system operating on servers based out of its own offices, it will “have a lot more liability.” With an on-premise system, the business owner is responsible for keeping social security numbers, tax forms and other sensitive information safe, whereas with a Web-based system, Merlini says, “you know that it’s externally supported and updated somewhere else.”
An additional consideration: a Web-based self-service portal is the only way workers can access their pay stubs and tax forms without going through the payroll department. By allowing employees access to this information, small business owners and heads of HR can free themselves of additional administrative tasks—leaving them time to focus on more important things.
In addition to questioning buyers about their deployment preferences, we ask about their time frame for implementing a new system. Our data suggests that, for most buyers in our sample, they begin doing research only when they have decided to purchase and implement their new software in the near future. Over half of the buyers we spoke with (57 percent) expressed a desire to implement new payroll software in 3 months or less.
As we noted in the introduction, this report includes only payroll software buyers representing organizations with less than $100 million in annual revenue. As you can see below, most buyers were even smaller: 70 percent of companies generated $25 million or less in annual revenue.
Additionally, the majority of these small to mid-sized businesses (61 percent) employed 250 employees or fewer.
Meanwhile, the most common job title for buyers seeking new payroll software was “HR manager.” However, more senior positions (HR director, vice president and owner) were also common titles among payroll software buyers.
As the buyers included in this report were from small to mid-sized businesses with a small number of employees, the involvement of high-level personnel isn’t uncommon. Many small to mid-sized businesses do not have a dedicated accounting staff or HR department to handle payroll, and these functions are often handled by the owners themselves.
Software Advice regularly speaks on the phone with organizations seeking new payroll software. To create this report, we isolated a sample of small-business payroll software buyers (from companies with annual revenues of $100 million or less). We randomly selected 385 of those interactions from 2014 to analyze.
If you’d like to further discuss this report or obtain access to any of the charts above, feel free to contact me at firstname.lastname@example.org.