Gusto (formerly Zen Pay Roll) is a cloud-based able, business-focused, HR and Payrolling software. It enables companies of any size to manage employee payments, benefits, and records from one place.
But how does Gusto generate its revenues? That’s what we’re going to look at in this post. We’ll explore Gustos’s financial statements and see how they make money.
Gusto provides payroll software for small businesses via a subscription service.
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Gusto was able to survive the COVID-19 crisis because of the leadership of its Chief Financial Officer Mike Dinsdale and the reliability of its business models. If anything, the COVID-19 outbreak has made the company even more necessary.
These services include:
- Employee onboarding
- Time tracking
- Health insurance
Business Model of Gusto
Gusto’s business strategy is that of software as a service (SaaS) in the human resources (HR)/payroll sphere. It succeeds by cutting expenses while still offering a good SaaS product to its users.
Its competitors are:
- Quickbooks Payroll
- Square Payroll
- Paychex Payroll
- Coastal Payroll
Gusto is a cloud-based software company that offers a range of digital business solutions including payroll automation, customer relationship management (CRM), and human resource management (HRM). They’ve made it easy for businesses to automate manual processes by using their web app.
Given the chaos caused by the COVID-19 pandemic and the subsequent lockdown, this digital assistance couldn’t have arrived at a better time.
Platforms include the following features:
- Small Business Financial Relief
- Employee Tax Calculator
- Burn Rate Calculator
- Salary Comparison Tool
- New Hire Checklist
- Small Business Guides
With its $10 billion valuation, Gusto has attracted plenty of attention. Former US vice president Al Gore is one of its investors.
The fact that they’ve partnered with accountants, insurance companies, and other important professionals in the HR, payroll, health care, and benefit industries make them an ideal partner for many of their professional partners.
Finally, Gusto ranked 25th on the Forbes cloud 100, which has sparked interest among investors for a potential 2022 IPO.
It should be noted that although COO Mike Dinsdale has reduced many expenses, he did not choose to reduce Gusto’s advertising budget. He reasoned that Gusto would need an extensive advertising campaign once the economic recovery began.
With any software, companies need to pay for technically skilled people, their energy expenses, the upkeep of their servers and computers, and the cost of maintaining their websites.
Furthermore, Gusto has the costs of any other Saas:
- Payroll for development
Brick-and-mortar companies often outsource most of their costs to third parties, but they still need to pay for certain legal services, including worker’s comp., insurance, etc.
The same can also apply to any company that offers payroll services. Even if they’re partnered up with an accountant, they may still have to pay for their own payroll service.
Due to the nature of what they do, they probably need to keep an HR team as well as several other specialists in different fields.
Plan for Profit
Gusto’s CEO Jim Harker has decided to follow the lead of his chief financial officer, Mike Dinsdale, who has laid out a strategy for profitable operations during the pandemic. This is called the “pandemia” (pronounced pan-dee-me) or “pandemic” (pan-DEE-mic) strategy.
Once there is national and global economic recovery, Dinsdale intends to aggressively market his business.
How Does Gusto Make Money?
Gusto makes money from its different service offerings in the form of three major revenue sources:
- Subscriptions packages
- Benefits packages
- Tax-advantaged Spending Accounts packages
Gusto has four different types of paid subscriptions for its products:
The Core package is designed for small business owners who need fewer than 10 employees. It costs $6 per month per employee plus an additional $39 monthly fee.
- Full-service payroll across all 50 states
- Employee self-service and profiles
- Workers’ comp administration
- 2-day direct deposit
- Paid-time-off policies
- Best-in-class support
- Employee onboarding tools
- Integrations for accounting and project management software
- Payroll on Autopilot
- Health insurance administration
- Employees can use their Gusto Wallet accounts to pay for purchases
- An employee offers document management
The Complete package costs $12/person each year plus another $39/person for the basic version. It includes all of the features from the Core package plus these extra ones:
- Next-day direct deposit
- Leave Policies and Requesting Paid Vacations
- Customizable employee onboarding tools
- Employee directory and surveys
- Project management and cost accounting
The Concierge service costs $12/month for each member plus an additional $149 monthly fee. It includes all of the features of the Complete service, but also adds these extra features:
- Certified HR pros
- HR resource center
The Contractor plan costs $6/person/month and has no additional cost.
The Contractor pack is different from the others in that it focuses on businesses hiring independent contractors rather than full-time staff. It features the following:
- Unlimited contractor payments
- Contractor self-service
- Filing tax forms for the first time
Besides paying for subscriptions, Gusto also provides benefits, both unpaid and unpaid, which act as revenue sources in some way or another.
- Workman’s Comp
- Gusto Wallet
- Health Insurance
- Health Reimbursement
- 401K Retirement
- 529 College Savings
Gusto doesn’t charge any admin fee. The customer only pays for premiums. Gusto doesn’t receive any commission from the insurance company.
Gusto Wallet is a completely free service for the employees of clients who want to keep an eye on their finances without having to worry about any hidden charges. However, there is no disclosure if they’re making anything off of these transactions.
Gusto charges clients and employees a monthly premium plus an annual membership charge. They don’t charge any administrative fees. It’s unclear whether or not they pay a referral bonus to their partners.
Flexible benefits allow employees to pay for their own insurance premiums out of pocket (OOP) or by reimbursing them through an employer-sponsored plan. If they choose OOP, the cost is usually between $0-$500/month depending on the state.
Gusto has partnered with Guideline for 401k plans. They claim to have one of the lowest fees in their field. However, details regarding their partnership with Guideline and whether they get any referral fees from Guideline have not yet been disclosed on their website.
Gusto’s retirement plan starts at $49/ month plus 8% of each participating employee’s salary. There is no setup charge. No setup charge.
Gusto’S College Savings plan includes tax-advantaged savings account through their partnership with Gradvisor. In that sense, students can earn interest on their college funds.
Gusto College Savings offers an annual contribution rate of 6% for employees who participate, plus 18 cents per dollar contributed by employers. There is no setup charge.
Tax-advantaged Spending Accounts
Gusto customers also receive monthly payments from their savings accounts, but they also have an annual fee for each type of account.
- Health Savings Accounts (HSAs)
- Commuter Benefits
- Flexible Spending Accounts (FSAs)
Gusto’S HSAa plan offers pre-tax contributions of up to $2.50 per month per enrolled individual. There is no minimum contribution.
Gusto offers commuter benefits for those who commute at least 20 miles each way. Customers must spend at least $20 per month to qualify.
Gusto offers flexible spending account plans for qualified medical and dependent care costs. You can choose between Health and Dependent FSAs. For each plan, there is a monthly fee of $4 per employee plus a $20 minimum.
Gusto Funding, Valuation, and Revenue
Gusto had raised $30 million in 2018, which was $10 million less than in 2017. However, the company did raise $20 million in its first round of financing in early 2019. So far, Gusto hasn’t announced any further rounds of financing.
Included investors are:
- T. Rowe Price
- Franklin Templeton
- Generation Investment Management (GIM), which was founded by Al Gore, is an investment management company based in London, United Kingdom.
- General Catalyst
As of today, total funding from the seed round to present is at $692 million.
Two years ago, Gusto had a market cap of $1 billion; today its market cap is almost double that at $2 billion. It is expected to go public sometime during the next decade.
Since 2018, Gusto’s revenues have increased by almost double digits, reaching $200 million. Nowadays, there are over 200,000 Gusto clients worldwide.
Is Gusto Profitable?
Gusto is profitable and growing; however, it is not capital efficient. It passes its costs onto employees rather than shareholders.
As a result of the COVD-19 pandemic, Gusto has been able to cut costs and increase profits.
Conclusion: How Does Gusto Make Money?
We’ve tried our best to provide you with some helpful information about how Gusto operates and makes money.
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