Grow revenues in price competitive markets

Growing revenues in this market is probably harder than it’s ever been. You’ve got several factors working against you. You’ve got an industry that is over-commoditized and over-heating right now. On top of that you’ve got an economy that is still not in recovery. You’ve got merger and acquisition activity going on that is making vendors larger and they are driving prices down because of their size. You have ADP and Paychex who are now selling insurance products. So even within the broader industry, the lines are being merged between who is a broker, who is a payroll provider, who is a PEO, who is an HRO, so there is client confusion at the same time.

A small business has to have exquisite focus on what their market position is and how they are going to win. They have to be bolder about it. They have to be persistent about it. If you have chosen to be customer intimate or you have chosen to be someone who is going to have product innovation, you have to drive all activities towards those and really drive the value back to your customers to grow revenue, because all the other factors are working against you. The economy, commoditization in the industry and merger and acquisition getting bigger are all problems, so that exquisite focus on spending every dollar available on high value work that drives revenue is critical to your success.

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The Product Quality Bar

The product quality bar is where you have a diverse set of products in your company sorted by company and by product type and by client type and you define exactly what the quality target you need to hit on those items is. If you took products in the HR industry, for instance payroll or workers’ comp benefits, the issue is not what clients say the quality needs to be, it’s the actions those clients take at different levels of quality. So the quality bar refers to what a client would leave for, what a client would stay for and what a client would pay for – all of which is organized by product line.

The best-of-breed clients segment their clients. It could be that you segment your clients by size, or by the type of business, or whatever makes sense in your client base to segment your clients. Then, within that client base, you take your products and define what is the quality bar you need to hit by client and by product, and then relentlessly measure what factors cause actions you desire and actions you don’t. Tracking things that way gives you exquisite focus around the current state, the desired state and what must be done to close the gap between the two. Best-of-breed companies manage to the gap in the quality bar at all times, which is why they have better client retention and why they retain revenue.

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.

Grow revenues in price competitive markets

Growing revenues in this market is probably harder than it’s ever been. You’ve got several factors working against you. You’ve got an industry that is over-commoditized and over-heating right now. On top of that you’ve got an economy that is still not in recovery. You’ve got merger and acquisition activity going on that is making vendors larger and they are driving prices down because of their size. You have ADP and Paychex who are now selling insurance products. So even within the broader industry, the lines are being merged between who is a broker, who is a payroll provider, who is a PEO, who is an HRO, so there is client confusion at the same time.

A small business has to have exquisite focus on what their market position is and how they are going to win. They have to be bolder about it. They have to be persistent about it. If you have chosen to be customer intimate or you have chosen to be someone who is going to have product innovation, you have to drive all activities towards those and really drive the value back to your customers to grow revenue, because all the other factors are working against you. The economy, commoditization in the industry and merger and acquisition getting bigger are all problems, so that exquisite focus on spending every dollar available on high value work that drives revenue is critical to your success.

What Makes CogNet Different?

CogNet is different in many ways. First off it is a global company. We do business around the world, but we are U.S.-owned and operated. Second, we have personal experience in the industry, both the PEO and the broader HR space, so we are very familiar with the key issues that are facing most of the people that are looking to solve problems in this space. Third, we have a culture and proof of flexibility. We have an appreciation of doing things the clients’ way and the reasons they need to do them in that way. This attitude is unique in small business because that entrepreneurial spirit, what they have done to create differentiation for themselves, often requires that you think of things a little differently in the small business space. We have a keen appreciation of that. Fourth, we have no contract minimums and no contract terms. We earn your business each and every day, and if we are not earning it, you should, and can, walk away. That is very unique.

In today’s space there are very few options that are new that are innovative and can really move the needle. I believe that CogNet, in the small business space, can really do that. We will help you move that needle.