Paychex 2016 Annual Report Download - page 24

public relations, trade shows, and telemarketing programs. We utilize a virtual sales force to service geographical
areas where we may not have a local presence or for products for which we do not have a local sales force. We
sell HRS products to both new clients and our existing client base.
In addition to our direct selling and marketing efforts, we utilize other indirect sales channels such as our
relationships with existing clients, certified public accountants (“CPAs”), and banks for new client referrals.
Approximately 50% of our new core payroll clients (excluding business acquisitions) come from these referral
sources. Our dedicated business development group drives sales through banking, national associations, and
franchise channels.
We have a long-standing partnership with the American Institute of Certified Public Accountants
(“AICPA”) as the preferred payroll provider for its AICPA Business SolutionsTM Program. More than half of the
CPA firms in the U.S. are enrolled and actively participating in the Paychex Partner Program from AICPA
Business Solutions. Our current partnership agreement with the AICPA is in place through September 2021. We
also partner with various state CPA society organizations.
Our website, which is available at www.paychex.com, includes online payroll sales presentations and
service and product information. It also serves as a cost-efficient tool that serves as a source of leads and new
sales, while complementing the efforts of our direct sales force. This online tool allows us to market to clients
and prospective clients in other geographical areas where we do not have a direct sales presence. In addition, our
insurance services website, which is available 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.
Paychex also builds on its reputation as an expert in the HCM 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 impacts of regulatory change. We track current
regulatory issues that impact the small business community and provide a monthly regulatory update.
Our Paychex Accountant Knowledge Center is a free online resource available through our website that brings
valuable information and time-saving online tools to accounting professionals. The BuildMyBiz®website, which
is available at www.BuildMyBiz.com, 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. Our internal database source indicates that there are approximately 11
million addressable businesses in the geographic markets that we currently serve within the U.S. Of those
businesses, approximately 99% have fewer than 100 employees and comprise our primary customers and target
market. The average client size within our existing client base is approximately 16.7 employees. We believe that
there is opportunity for us in the HCM market as the demand is moving down-market to smaller businesses.
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. Revenue from operations in Germany and long-lived assets in Germany are
not material. We also have a joint-venture arrangement to provide payroll and human resource services in Brazil.
We utilize service agreements and arrangements with clients that are generally terminable by the client at any
time or upon relatively short notice. For the fiscal year ended May 31, 2016 (“fiscal 2016”), client retention was
in excess of 82% of our beginning of the year client base, consistent with the prior year’s record high. No single
client has a material impact on total service revenue or results of operations.
The market for HCM services is highly competitive and fragmented. We have one primary national
competitor and we also compete with other national, regional, local, and online service providers, all of which we
believe have significantly fewer clients 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. HRS products 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.
6