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NAPEO Insights

We enjoyed exhibiting at the NAPEO Conference in San Antonio this year as an Associate Member and supporter of the industry that helped us get our start. We have been serving the PEO industry since 2007, but many on our team began this journey many years ago and appreciate the innovation and resourcefulness in the space.

We consider ourselves lucky to have grown up in such a diverse HR Services environment, one that offers literally all of the services normally provided a la carte in a buffet of products. We understand as much as you do the intricacies and challenges of offering a wide array of value-added services to your clients. It is a vital contribution to the lifeblood of the global economy, the small business.

We specialize in the HR Services industry and this year’s gathering contained a theme consistent with others we serve, from payroll to benefits. Oh sure, we may be more worried about health care reform than a straight up ASO or HRO provider, but the common thread of the recession runs through all of our customers and friends. How do I focus more of my hard earned assets on sales and service?

We had a fancy flash presentation at our booth sharing the statistics, but since there wasn’t a test, let us offer a quick review. PEOs spend 80 percent of their operating expenses on labor, and the lion’s share of that is in operations. Both EBITDA margins and the percent of gross margin spent on Sales and Marketing followed the same suit. You are spending less and less on keeping the hard earned clients you have and bringing in new ones, while you spend the same to more on the processing and transactional parts of your business.

That graph tells you to change your model and make a change to your five year financial plan, not just another whack to the 2011 budget.

There are many business models that are shifting to a more virtual environment, and PEO is a perfect candidate. Do you use a vendor to do your background checks, or even provide FSA accounts? Of course you do. Yet you have people pounding away in operations and accounting on spreadsheets and reports that may never see the light of day, or increase your margin.

So consider a few facts for a moment:

  • Your clients are all over the country and rarely come to visit the home office.
  • Most of you encourage your clients and work site employees to self-serve over the web.
  • Sales and marketing is very expensive given the average size of your client, so investment in it is a scarce and valuable resource.
  • Service always matters, but price is becoming more and more important to your clients.

The reality is that your clients care about value for their dollar. They want payroll to be right and on time, insurance coverage to be administered correctly, taxes to be paid accurately, and HR that evokes the least amount of noise from their employees., The economy is bringing about a shift in customer desires. If you don’t react, your competition will.

Let’s face it, the big boys are getting bigger and seeking scale for a reason. There are two ways to reverse the margin trend we are seeing, get bigger or do it differently. We offer a bridge to becoming more of a “virtual PEO”. Oh sure, it may be the Seven Mile Bridge and you can walk if you like, but the fact is you are on it either way.

Technology allows you to have people working from home, sales people in markets with no brick and mortar, service people working at your clients’ sites, and all the early indications of a virtual business. But, you still have that office full of process, finance, technology and functions in the fish bowl. Think outside that tank and let us put our industry expertise and knowledge of both sides of the world to work making you more productive, financially and strategically.

 

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