Give Payroll Software Away Free and Sell Health Insurance Instead
A free payroll tool can attract far more businesses than a paid one, and health coverage is a vastly larger business to sell them.
A Product Market Fit Show | Startup Podcast for Founders · Forget PMF—Neil Patel says to give your product away for free instead. | Neil Patel, Co-Founder of Neil Patel DigitalThe money is not in payroll software. It is in what payroll customers buy next.
That is the argument from Neil Patel. Instead of charging businesses to run payroll, give a tool with the core features of services like Gusto away free, then sell those users something with a much larger market: employee benefits, starting with health insurance.
Running payroll in the United States is more complicated than most people think, because tax rules vary by state and city. Patel notes that organizations already compile that data and sell it, saying buying it is "not the most expensive thing in the world," so he suggests a founder could treat it as a one-time cost already paid, plus a monthly fee.
A free product with no strings attached could then grow on its own. Patel suggests that a free tool with Gusto-like features, even without brand recognition at the start, has a good shot at becoming more popular than a paid rival. He frames free as its own form of marketing.
Every business that signs up is then a lead for a bigger sale. Employers have to run payroll, but their workers want benefits such as health coverage. Once many companies are using the free payroll tool, the maker can offer them insurance and collect revenue there.
The size gap is the point. Patel cites about $400 billion in 2024 revenue and $14.8 billion in net income for health insurer UnitedHealthcare, compared with about $5 billion in revenue and $1.69 billion in profit for payroll software company Paychex. In other words, the insurer's profit alone exceeds the payroll company's total sales.
The model is to monetize the lead, not the product. Because software has such high margins, a company can give it away and make nothing on it. If a small share of those users buys an offer with higher revenue per user, like insurance, that can still bring in more than charging every user for software, while the free offer keeps bringing in new businesses.
Questions people ask
Would a company actually trust free software to handle paychecks and taxes?
Trust is the main hurdle, because mistakes can trigger penalties and upset employees. Free providers usually address it with security certifications like SOC 2, segregated client funds, tax-filing guarantees, and responsive support, the same assurances paid payroll companies advertise.
How would a software startup sell health insurance?
It would typically become a licensed broker or partner with an existing broker, carrier, or benefits platform. The startup refers its payroll customers, helps them compare plans, and earns commissions or administrative fees each month the employer keeps coverage.
Why is health insurance so much larger than payroll software?
Payroll software charges a modest subscription per employee or per pay run. Health insurance collects thousands of dollars per employee per year in premiums, so even thin margins on a huge premium base produce enormous revenue compared with software fees.