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What is the “Virtual PEO”?

We recently attended the NAPEO conference in San Antonio and found a common theme in many of the conversations, at the booth or the bar, about being a more virtual organization.

The timing is perfect because we recently added a PEO/HRO client who gets it, and together we are building the “virtual PEO”.

Let’s be real for a moment. A PEO/HRO has clients all over the place and has invested a great deal of money and technology to entice them to interact electronically. Come on man, your clients really don’t come to that nice office space, nor do you really want them. So let’s shoot straight for a moment about where you want to go, not where you are today.

You are in a business with a high cost of client acquisition (Sales, Marketing and Installation). Your average group has 18 employees and based on the recent financial report you make a whopping $2,320 of operating income per year on this client, or 0.35 percent of billings. Did you spend more than that getting the client? How many years do you have to keep them to break even?

You also spend 65 to 80 percent of your total operating expenses on labor and a place to put them. That dog will hunt for a season or two, but not much more.

Heck, you may have even gone half way there on being virtual, but only with your sales and service people working out in the field and from their homes logging a lot of dashboard time. But for some reason you stopped there. Why?

Our client realized all of this and we joined in a collaborative manner to get them to a new business model that is here to stay, the Virtual PEO. This is a change in business model, not just a tweak. It only takes the realization that your clients are remote and simply want you to not screw up their payroll and benefits, and when the time comes that they need some HR help there is someone available to help them.

What do you do? Focus your money on sales and service in the field to accomplish you objectives. A lower cost of transactional services leaves money available to hire another sales person, or use a HR consultant to help your clients when they are in need. Not hire another staff accountant to recon those benefit bills or enter some payroll hours into the system.

So let’s look at how the math could work out on average, shall we.

  • Let’s say you have 2,500 WSE and average $800 of gross margin per WSE, which means you do $2.0 million in revenue annually.
  • Average Operating Income is $129 per WSE so you put $322,000 a year in the bank.
  • The business requires one non-sales internal employee for every 125 WSE, so you have 20 employees running you business.

Those people on average “all in” including wages, taxes, benefits and overhead cost you $50,000 each or $1.0 million a year.

You let Cognet come in and show you the path to a virtual world. Maybe that means you keep your best ten employees who are customer or regulatory focused, and we step in to take the transactional roles offshore for you. What does that mean to you?

You reduce your labor by $0.5 million a year in the first six months with Cognet.
Net of what you pay us you save easily $320,000 a year.

You just doubled your profit and changed your business model. Now your best and brightest are worried about keeping ADP out of your accounts, not that spreadsheet with PTO hours in it. You also get ISO certified precisions, measurement, process expertise, accountability and reports out the wazoo about every facet of your business that you didn’t have before.

That is what one of our clients is doing today. They see the economic and systemic flaws in the business model and are willing to do things a different way, while doubling their profits. This has an impact on the next five budgets, in good times and bad, not just another tight year.

We are interested in the many ways that our small to mid-sized PEO friends wish they could improve their business models. So go to today and tell us what you think.

The national players will go here and have scale. What are you waiting for? If you are an awesome regional operator give us a call today, then tomorrow you can be even more client focused in your back yard.

We solve business problems, not just save you money.


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