ZenPayroll proves that SMB software can scale, crossing 10k paying customers in under two years

By Michael Carney , written on February 18, 2015

From The News Desk

Small- and medium-sized businesses (SMBs) have long been the black sheep of business software customers. Considered too small and too fragmented to sell to individually, most software provider have ignored this lower end of the market in favor of larger enterprises, or at best offered feature-limited access to product that are often ill-suited to users at this scale.

It’s notable then that ZenPayroll, one of the fastest growing and most highly-celebrated software companies of the current generation, has chosen to target this long-tail market almost exclusively. Today, the company announced a significant milestone in its growth, crossing 10,000 active customers using its cloud-based payroll system, each with between one to 100 employees. 

ZenPayroll is now available in 38 states and the District of Columbia, markets that collectively include more than 95 percent of the US population according to CEO Joshua Reeves. The company now processes multiple billions of dollars in annual payroll. Unlike its early days, when the majority of ZenPayroll’s customers were fellow technology startups, its product is now widely distributed across industries with tech (15 percent), media (14 percent), consulting (10 percent), healthcare (9 percent), and legal (8 percent) leading the way.

“ZenPayroll has reached 10,000 customers faster than any other small business software company and their growth rate is accelerating,” says General Catalyst Managing Director Hemant Taneja.

The company’s core driver of growth is still word of mouth, Reeves says, although its accountant and CPA-focused product has helped drive meaningful adoption. ZenPayroll has also begun offering on-boarding and customer success support to companies with more than 10 employees.

“We can see word of mouth accelerate as we reach density in each market,” Reeves says. “We typically have hundreds of signups in each state pre-launch.” 

With approximately 6 million businesses in the US that have employees, 40 percent still do payroll manually according Reeves. Nearly as many, one-third, get fined each year for doing their payroll incorrectly.

Reeves and his team, like most companies at their stage, are reluctant to share detailed financials. But with a known SaaS pricing structure, we can make an educated guess into its revenue. Businesses pay a flat fee of $25 per month, plus $4 per month per employee. If we assume that the company’s average customer has ten employees, then its monthly revenue would be $650,000 ($7.8 million per year) – a healthy sum at this still early stage. At an average of five employees, that figure falls to $450,000 per month ($5.4 million per year) and at 20 it rises to $1.05 million per month ($12.6 million per year). But by all accounts, whatever the current revenue figure is, it's growing rapidly. 

ZenPayroll has grown to 80 employees, up roughly threefold from its 27-person size a year ago at the time of its high-profile $20 million Series A. Although an imperfect measure of expenses, the average fully burdened annual cost of an employee in Silicon Valley is thought to be $200,000, suggesting that the company is surely still losing money. But given its healthy growth and the recurring nature of its revenue, this is unlikely to concern Reeves or his investors – a list that includes General Catalyst, Kleiner Perkins Caufield & Byers, Google Ventures, Salesforce, and the CEOs of many of Silicon Valley’s most notable companies.

To quote SaaS guru Jason Lemkin, “Getting from $0 to $1 million in revenue is impossible. Getting from $1 million to $10 million is unlikely. Getting from $10 million to $100 million is inevitable.” Based on the current size of ZenPayroll’s customer base, the company likely resides somewhere between unlikely and inevitable and appears to be riding a healthy tailwind.

Reeves has been building out his senior leadership team commensurate with ZenPayroll’s rapid growth. The latest high-profile addition is that of former Google Head of Small Business Marketing, Americas, Brett Willms, who joined ZenPayroll as its first ever Chief Marketing Officer. 

“Until we hired Brett, I was leading marketing myself,” Reeves says “We’re in the scaling phase now and we’re hiring great player-coaches to run each of our operational divisions. I like to say, it’s my job to keep firing myself from all these operational hats I’ve wearing. Brett is going to be a huge help for us and we’re thrilled to be able to add someone of his caliber.”

Sales and marketing currently represents approximately 25 percent of ZenPayroll’s overall headcount, according to Reeves, who expects this group to grow under Willms’ direction. 

Having watched ZenPayroll’s evolve since its early days launching out of Y Combinator, and more recently experiencing the product first-hand as a user through Pando, the company’s strong growth doesn’t come as a big surprise. Since its earliest days, I’ve been struck Reeves and his team’s uncanny levels of excitement over payroll, a category which for most is mundane and utilitarian. Reeves is constantly using words like delightful and empowering to describe his product objectives, while espousing on the power of great payroll software to supporting the emotional aspects of employment. As anyone that’s spent time with him in person can attest, it’s no act. He gets abnormally worked up about this stuff in the best possible way. Combined with his proven sense of how to improve on existing offerings within the sector, ZenPayroll’s success appears more predictable, yet still impressive.

Reeves describes ZenPayroll’s two core missions as saving SMBs time and money by modernizing payroll, and humanizing compensation.

“Working and getting paid should be more than an ID number and a monetary transaction,” he says. "Our product is focused on enabling managers to reward their teams for great work, and for employees to be appreciated for the work they do."

One area where this attitude is particularly visible is in the charitable giving functionality within the ZenPayroll platform. The product supports automated monthly donations direct from paycheck, as well as employer matching, traditional large-company features that have never before been available to SMB users. 

“It’s sort of a passion project for me," Reeves says of these charitable efforts. “It means a lot to me personally to see the uptake and people tweeting out and sharing the fact that they’re using this service.”

But intangibles aside, ZenPayroll is succeeding because it’s simply an easier and better way to manage payroll for many businesses, particularly those that can’t afford to work with category giants like ADP, Paychex, and Intuit (or those who can’t stand to do so any longer). 

The cloud-based platform offers an intuitive, consumer-grade user experience (UX), something that should be a given in 2015, but which, sadly, is far from the case for most legacy enterprise products. ZenPayroll has also built integrations with many of the top cloud services across the business suite, including things like accounting, scheduling, expense management, point of sale, and business management.

At 10,000 customers, ZenPayroll has acquired about 0.18 percent of the addressable market. As minuscule as it may seem, given the historical difficulty in accessing this SMB user base, it’s actually quite impressive early growth. Also, there’s no shortage of growth opportunity ahead. More importantly, as a subscription business with high levels of customer satisfaction, it’s a healthy and relatively predictable revenue base on which to build. 

“We still have a lot of work to do, and we look forward to bringing delightful, modern payroll to millions of businesses across the country,” Reeves says.