Building a Payroll Business With Embedded Payroll: Trends and Recommendations

Behind the Paycheck

Unlocking Embedded Payroll Success

Are you considering building a payroll business with an embedded payroll platform? If so, the product itself is just one part of a successful new product line, and the go-to-market executives who have built Gusto have learned valuable lessons on the dynamics of selling and servicing payroll.

To surface those insights, Gusto Embedded hosted a live event with Tolithia Kornweibel and Jason Ing. Tolithia, who previously held leadership positions at insurance innovator Esurance, now serves as Gusto’s Chief Revenue Officer. Jason Ing, formerly the Global GM of Marketing at Amazon Web Services and Gusto’s Chief Marketing Officer, brings a wealth of experience in marketing and a deep understanding of the power of technology platforms. 

The event was hosted by Brian Busch from Gusto Embedded, who also co-hosts the SMB Tech Innovators Podcast. On the show, he interviews engineering, product, and revenue leaders from small business SaaS platforms and discusses the rise of vertical SaaS, hands-on experience working with embedded fintech, and recommendations for the next generation of SMB tech.

The points that follow have been edited for clarity and updated by Tolithia and Jason to distill the key points of the conversation; however, we encourage you to watch the event replay to dive deeper into the insights shared by these executives.

Macro Trends and SMB Market Insights

Navigating the ever-changing landscape of the SMB market requires a deep understanding of its dynamics, as highlighted by the trends and insights SaaS leaders are seeing. The U.S. Census Bureau’s report on the surge in new business creation in 2022 points to a thriving market, but the impact of contractors and tech layoffs adds complexity to the picture. In the face of economic uncertainties, businesses are adapting their strategies and addressing the challenges of retention versus acquisition. Robust cloud solutions become a key differentiator for SMBs striving to attract and retain top talent while remaining competitive. The advantages of embedded services, especially in fintech, demonstrate how maximizing functionality and innovation can lead to cost-effective product development.

The Changing Landscape

The US Census Bureau reports a significant increase in new business creation in 2022, signaling a thriving SMB market. However, the rise of contractors and tech layoffs have also impacted the industry. Understanding these dynamics is crucial for identifying opportunities in the SMB space. For example, the increase in contractor hiring changes product needs and the unit economics of a payroll business.

Retention vs. Acquisition

While traditional advice suggests focusing on customer retention during a downturn, for SMBs, the current labor market conditions and employee expectations call for increased productivity and efficiency. Offering robust cloud solutions becomes imperative for SMBs to remain competitive and attract and retain top talent. Despite the economic headwinds, SMBs tell us they feel pressure to invest in modern SaaS tools to attract and retain top talent, extending beyond the software to benefits like on-demand pay.

Solving More Customer Pain: The Key to Stickier SaaS

Sticky businesses in the SaaS industry enjoy higher customer lifetime value (LCV). By providing integrated and comprehensive solutions, SaaS companies can enhance customer experience, increase LCV, and drive organic growth through positive word-of-mouth. With churn top-of-mind for SaaS leaders, reducing churn is vital for ensuring sustainable growth and maximizing revenue, as it helps retain existing customers, ultimately leading to long-term success in highly competitive markets.

“For vertical SaaS, we’re only at the tip of the spear where more and more customers will demand fintech products or switch to the competition, and embedded services will be the difference between retaining or gaining customers.”

Jason Ing
Chief Marketing Officer, Gusto

Why Embedded Services?

The advantages of using embedded services, especially in fintech, lie in maximizing functionality, infrastructure, and investment. Combinatorial innovation allows teams to leverage various services to create new products faster and at a lower cost.

Customer Expectations and Product Leadership

Customer expectations and needs drive innovation, and visionary product leaders must stay ahead of the curve. Understanding customer pain points and providing value, functionality, speed, affordability, and ease of use is crucial for successful product development.

“The experience of AWS shows that combinatorial innovation allows SaaS product teams to combine services to generate new products faster and cheaper. Our co-founders Eddie and Tomer both talk about this concept as we use it internally at Gusto and as it informs the mission of Gusto Embedded.”

Jason Ing
Chief Marketing Officer, Gusto

Embedding Payroll: Industry Insights and Recommendations

Considerations for Building a Payroll Business

When building a payroll business  within a SaaS platform, it’s essential to assess the market trends and industry dynamics. Understanding optional versus must-have fintech products, stickiness factors, exclusivity, and customers’ expectations can guide decision-making.

Data Advantage and Seamless Integration

Leveraging unique data insights from your business can differentiate your payroll offering. Integrating payroll with other fintech products enables customer experience and provides additional value. Gusto Embedded’s partner Collective is a good example of embedded payroll tailored to the specific needs of their customer segment and integrated seamlessly. POS partner SpotOn is a good example where payroll data can augment the financial dashboards in the platform to give SMBs a better picture of their overall financial health.

The Complexity of Payroll

Building a payroll business is challenging due to the complex regulatory environment and compliance requirements. Partnering with an experienced provider like Gusto can help you navigate these challenges and ensure a reliable and efficient payroll solution.

“Embracing fintech’s complexity is essential for sustainable growth. While the allure of high margins and fees might be strong, exclusivity and customer loyalty often stem from tackling the intricate aspects of embedded services like payroll that set your products apart.”

Tolithia Kornweibel
Chief Revenue Officer, Gusto

Value of Experience and Embedded Solutions

Experience plays a significant role in successfully implementing embedded solutions. Leveraging a partner with industry expertise, a track record of success, and a focus on customer engagement can drive adoption, revenue growth, and customer satisfaction.

SaaS Roadmap for Embedded Payroll and Embedded Finance Products

Roadmap Considerations

When considering embedded payroll or other fintech services, aligning with customer needs and prioritizing the products that enhance stickiness and offer unique advantages is crucial. Tolithia recommends avoiding lumping different products together and maintaining a customer-centric approach to maximize adoption and loyalty.

Data, Risk, and Compliance

Evaluate the data advantage and consider the compliance and risk management requirements when integrating fintech products. Choose partners with a strong track record, audit capabilities, compliance services, and a focus on customer safety.

“Data is the lifeblood of fintech, but navigating its complexities requires a deep understanding of risk and compliance. In business, especially in financial services, nothing is without risk, and ensuring the safety of customers’ data and assets demands unwavering diligence and a trusted technology partner.”

Tolithia Kornweibel
Chief Revenue Officer, Gusto

Embedded vs. Integration

Embedding fintech services offers significant advantages over integration. Access to a partner’s experience, scalability, support, and resources can significantly impact the success of the offering. Consider whether your organization has the necessary skill set to implement and maintain an effective integration.

In navigating the world of fintech and SaaS products, it is essential to differentiate between various categories rather than lump them together, especially regarding compliance and financial constraints. Careful consideration of a business’s pain points and closest adjacent solutions is critical. While the roadmap may include deep or broad fintech concepts, it is crucial to acknowledge that nothing is entirely risk-free in the business landscape, particularly financial products. Diligence and customer safety are paramount, requiring strong partnerships with technology providers with a proven track record, compliance services, and the necessary resources to run a risk-managed and compliant business.

Reaching and Selling to SMB Customers

Targeting New Businesses

With a growing number of new SMBs entering the market, reaching and engaging prospective customers early is crucial. Understanding the dynamics of different business sizes and industries allows for tailored marketing and sales strategies.

“Partnering with a company that can help you identify not only which of your customers will benefit from this integration but how to reach out to them and ensure that the integration is better for them than their lives today is critical. You wouldn’t want to go it alone!”

Tolithia Kornweibel
Chief Revenue Officer, Gusto

Providing Value in Sales

For time-strapped SMBs, the sales process itself should provide value. Craft marketing and sales approaches that offer insights, expertise, and a seamless experience to attract and retain customers for your payroll services.

Different Modalities for Different Customers

SMBs vary in size and needs, so a blend of sales strategies is essential. Tailor your approach to high-velocity sales, consultative selling, or other modalities based on your ideal customer profile and industry. Setting the appropriate pricing for embedded fintech is crucial for platform growth and user retention by reducing purchasing friction and enhancing adoption from current customers across various product types and verticals.

“From small businesses with a few employees to tech startups and larger companies, each requires a tailored approach. Consider the dynamics and emotions involved, and support a blend of strategies from high velocity to consultative selling. Don’t get ahead of yourself; instead, focus on well-supported and sequenced models to effectively engage your diverse customer base.”

Tolithia Kornweibel
Chief Revenue Officer, Gusto

Hiring Small Business Experts

To better understand your future customers, hire individuals with expertise in the small business sector. Their insights and knowledge can help shape your product offerings and enhance customer satisfaction.

Building a successful payroll business using embedded payroll requires a deep understanding of industry trends, customer needs, and the advantages of embedded fintech services. Businesses can navigate the complex landscape by prioritizing customer value, seamless integration, data insights, and segmenting existing customers well in order to drive adoption and retention. As you embark on this journey, remember that experience, expertise, and partnerships are vital in ensuring success.

Listen to the entire event on LinkedIn.

Learn more at Gusto Embedded, and to get notified when new embedded payroll content is available, subscribe to the Gusto Embedded Newsletter.

Brian Busch Brian is currently Head of Marketing at Gusto Embedded; the only payroll API with 10 years of experience and actionable data behind it. Before joining Gusto, Brian held leadership positions at Cloud Elements, Kapost, and Captricity. He holds a BS in finance and a BA in philosophy from Boston College and an MBA from the Cal Berkeley Haas School of Business.
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