Paycom Software, Inc. (PAYC)

How it makes money

Nearly all revenue is recurring: clients pay a per-employee, per-payroll-run fee for continued access to the software, which Paycom collects automatically each time a client runs payroll, giving the business a subscription-like cadence without a fixed monthly contract. A small remainder comes from one-time implementation fees charged when a new client is set up on the platform. Clients can cancel with 30 days' notice, so revenue depends on retaining employer headcount and clients rather than on multi-year lock-in.

Revenue by segment

Revenue tracks the number of employees processed through client payrolls, so it softens when clients lay off staff in a downturn even without losing a single client. Growth otherwise depends on winning new employers away from competitors and outsourced payroll providers in a market the company itself describes as highly competitive, and where moving upmarket to larger customers puts it against a wider set of rivals.

Key risks

• Intense competition and pricing — The HCM software market is highly competitive, and Paycom's offering is more expensive than many competitors'; moving upmarket to larger customers puts it against a wider set of rivals and can pressure margins.
• Client retention with short notice periods — Clients can terminate their agreements with just 30 days' notice, which introduces volatility in the company's annual revenue retention rate and makes results sensitive to client satisfaction and pricing competition.
• Beti reducing billable corrections — Beti's design, having employees catch and fix payroll errors themselves before submission, reduces payroll errors but can also reduce revenue the company previously earned from billable correction work.
• Cybersecurity and data breaches — Security vulnerabilities, cyberattacks or data breaches could cause clients to reduce or stop using the platform, harm the ability to attract new clients, and expose the company to significant liability and privacy-law penalties.