SMB Payroll Survey: Fertile Ground for Cloud Penetration

THE COWEN INSIGHT

We surveyed nearly 1,000 HR professionals, owners, and executives at US SMBs with purchasing decision responsibility for payroll processing methods to determine the addressable market opportunity for cloud/SaaS payroll software vendors.

The results suggest a better-than-expected addressable market opportunity still exists for cloud payroll software solutions. We estimate 40% or ~510k organizations as prime candidates for conversion. Multi-year growth of cloud payroll software among SMBs counters market perception of more broad-based penetration.

Multi-Year Runway Exists For Cloud Payroll Software Growth

SMBs represent a high-growth area for the SaaS payroll software market. To many market participants the sustainability of such expansion is unknown. This survey aims to bring clarity to this question.

We worked with Altman Solon & Company, a TMT-focused strategy consulting firm, to conduct the survey. Based on our survey, we estimate that ~510k businesses, or a notable ~40% of the SMB market with 10-999 employees, remain as prime candidates for SaaS payroll solutions.

Solution providers in this market are fragmented. SMBs continue to use general purpose software, on-prem payroll software, local payroll providers, CPAs/bookkeepers, and paper-based payroll processing methods on a large scale. We think these two points are under appreciated, which is reflected in our above-consensus growth rates.

We believe the projected opportunity for cloud payroll software is well above investor expectations and is supportive of a multi-year growth potential. The data suggests this market is not a zero-sum game for the most notable brands and is supportive for public human capital management (HCM) software providers. The potential to convert these SMBs is further bolstered by the dissatisfaction with existing payroll processing methods by one in five non-cloud payroll software survey participants.