Paychex 2012 Annual Report Download - page 24

insurance services website at www.paychexinsurance.com provides information to help small businesses
navigate the insurance industry, and generates leads by allowing interested parties to get in contact with one of
our professional insurance agents.
In addition, Advantage Payroll Services Inc. (“Advantage”), a wholly owned subsidiary of Paychex, Inc.,
has license agreements with independently owned associate offices (“Associates”), which are responsible for
selling and marketing Advantage payroll services and performing certain operational functions, while Paychex
and Advantage provide all centralized back-office payroll processing and payroll tax administration services. The
marketing and selling by the Associates is conducted under their own logos.
Paychex also builds on its reputation as an expert in the payroll and human resources industry by providing
education and assistance to clients and other interested parties. We provide free webinars, white papers, and other
information on our website to aid existing and prospective clients with the impact of regulatory changes. We track
current regulatory issues that impact the small business community and provide a monthly regulatory update. In an
effort to help entrepreneurs and small-business owners achieve success, in fiscal 2012 we launched a new website,
BuildMyBiz.com, that provides tools and resources for starting, growing, and managing a business.
Markets and Competition
We remain focused on servicing small- to medium-sized businesses based upon the growth potential that we
believe exists in the markets we serve. Industry data indicates there are approximately ten million employers in
the geographic markets that we currently serve within the U.S. Of those employers, greater than 99% have fewer
than 100 employees and are our primary customers and target market.
We serve a diverse base of small- to medium-sized clients operating in a broad range of industries located
throughout the U.S. and in Germany. As of May 31, 2012, we serviced approximately 567,000 payroll clients.
We utilize service agreements and arrangements with clients that are generally terminable by the client at any
time or upon relatively short notice. For fiscal 2012, client retention was approximately 80% of our beginning
client base, up from 79% for fiscal 2011. No single client has a material impact on total service revenue or results
of operations.
The composition of the U.S. market and the client base we serve by number of employees is as follows:
Business size
(Number of employees)
Estimated
market distribution(1)
Paychex, Inc. distribution
of client base
1-4 83% 42%
5-19 13% 40%
20-49 2% 12%
50-99 1% 4%
100+ 1% 2%
(1) Based on currently available market data from Dun & Bradstreet.
The market for payroll processing and human resource services is highly competitive and fragmented. Our
primary national competitor, ADP®(“Automatic Data Processing, Inc.”), is the largest U.S. third-party provider of
payroll processing and human resource services in terms of revenue. We compete with other national, regional,
local, and online service providers, all of which we believe have significantly smaller client bases than us.
In addition to traditional payroll processing and human resource service providers, we compete with
in-house payroll and human resource systems and departments. Payroll and human resource systems and
software are sold by many vendors. Our Human Resource Services also compete with a variety of providers of
human resource services, such as retirement services companies, insurance companies, and human resources and
benefits consulting firms.
Competition in the payroll processing and human resource services industry is primarily based on service
responsiveness, product quality and reputation, breadth of service and product offering, and price. We believe we
are competitive in each of these areas.
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