At the end of 2005, ADP’s current annual revenue is at $8.5 billion, with approximately 590,000 clients worldwide! In the last 10 years, with the payroll business being dominated by ADP and Paychex, there have been some amazing developments. In 1995, ADP had 375,000 clients and Paychex had 215,000 clients. In 2005, ADP had grown to 590,000 clients while Paychex was totaling 522,000 clients (these numbers come directly from their corporate websites). Ten years ago, these two firms’ combined number of clients was 585,000. Now they have a combination of 1,112,000 clients with 527,000 businesses coming to the decision that it just doesn’t make sense to do their payroll anymore.
For those bookkeepers who understand the great potential of the payroll business in USA, we will discuss five main reasons why it is ripe and extremely profitable for accounting firms. At first we should look at the background of why payroll is such an opportunity.
First, the government’s employment regulations keep getting more complicated and continue to be too much to handle for most businesses. In addition, times have changed for accountants. Technology has vastly improved and is now much more affordable. Our computers are greatly more productive, Web access, and sophisticated reporting options now give accounting firms the tools they need to become significant competitors in the payroll processing arena. With an open mind and a focus on increasing profits, let’s look at the obvious and also the hidden opportunities for entrepreneurial accounting firms that want to earn from the payroll opportunity.
Let’s begin with a review of the potential of the national payroll market. According to the largest demographic database firm in the country, there are almost 10 million businesses in USA with 1 to 100 employees. This is a primary market for payroll outsourcing. Some firms might want to provide services for companies with 100 to 1,000 employees but the primary clients for outsourced payroll services have fewer than 100 employees. As of mid-2005, out of the potential base of 10 million businesses, the Big Two combined only have approximately 1.1 million. The other payroll firms either producing payroll themselves or providing their payroll to others – Ceridian, Time Plus, and Payroll 1 – are responsible for another 200,000 payroll clients.
Further research indicates that other companies in the United States, which include payroll services bureaus, and accountants who provide payroll check writing services, have another 200,000 payroll clients. Statistics show that other companies that provide payroll check writing services have another 300,000 to 400,000 clients.
The three largest payroll firms – ADP, Paychex, and Ceridian – are all publicly traded national companies and their public information shows us that they add 10 percent in the number of new businesses they acquire for payroll outsourcing. This puts the existing business market that utilizes a payroll service at about 1.6 million.