Back to Main Page

Drivers of Customer Turnover

Drivers of customer turnover are really a cornucopia of things. There are so many different moving parts in the HR services industry that any one of them in a combination and at the same time can cause turnover. Also it causes HR service providers to have the urge to expand. If you look at ADP, they just buy more product and expand more product, that will cover more bases and will bring up retention. That’s a double-edged sword though. If you are a smaller provider adding more product is great, it has a distraction or opportunity cost to it and it gives you more opportunities to screw up. You could really cause your own loss by going past what your organization can handle. Still, at the end of the day, you have to be able to deliver the low value- added tasks better, faster, and cheaper.

Let’s look at an example here in the PEO industry. What causes the complexities? If you look within the PEO space, the insurance decision drives around 70 percent of the decisions. It’s either health care insurance or workers comp when it’s appropriate. That’s the buying decision. It’s the economic decision for even looking at the product to begin with or looking at switching providers that you are currently with.

The negative, or flipside, of that is it creates more shopping opportunities. You’ve got a health renewal, you’ve got a comp renewal, and you’ve got taxes changing on an annual basis. Many different times of year that customer is getting an opportunity or reason to think about shopping. That creates its own distraction that you have to make sure that you have to manage along the way while being high value-add.

How do people in the industry reduce turnover? There are some events happening today that clarify where that’s going to go in the future. If you look at the behavior of ADP for example, they have bought and bought and broadened out product and now, not only them but Paychex as well, are starting to sell insurance. So they are infringing on a territory there. Also, big banks now own insurance brokerages or own payroll bureaus and broaden their product out and now those two are starting to bump together.

So the lines are really blurred as far as who the providers in the space are. Add to that, of course, the cloud, which is a bit overused, but it’s out there. Now you have a capability to offer all those services to any amount of customers, from 8 lives to 800 lives, and one of the biggest changes coming forward is that the sales and distribution of those products is where it’s all at. The people who are selling those products today could very easily be at the cloud. They could have a private label product, whether it’s payroll, benefits administration, insurance products, or insurance brokerage for example, and it’s very easy for them to enter the space and be providers who could provide that. I like to call it “entry without infrastructure”. I can get a distribution company into the business tomorrow of HR services in a private label setting without them even lifting a finger. That will be a huge impact to the market in the future.


Get your Cost of Process Assessment