How Client Service Affects Profitability

The PEO industry has changed a lot since its inception. An industry that was born primarily to earn a profit from reselling aggregated workers’ compensation insurance and health benefits to small businesses has evolved into a true human resource outsourcing value proposition. With this evolution, superior client service for an increasingly needy client base has become considerably more important. Client service is no longer just a necessary function to sell the PEO value proposition; in many ways it is becoming the product itself.

In order to compete effectively as a PEO in today’s market client service must be the cornerstone upon which your offering is built. It must be integrated into the culture of your company. Your customers are never too needy and should never be treated as if they are an annoyance, they are the reason you exist as a business. In an outsourcing arrangement, the client expects to be able to quickly get in touch with an expert that will own their issue and communicate frequently until their issue is resolved.

As technology becomes more cost effective and pervasive, even in blue collar sectors, clients are expecting a well-organized, content rich, and easy to use online portal available 24X7 when convenient for them.

There are three key ingredients to building a first class client service function in your organization:

  1. Culture: The entire firm needs to understand and live by the idea that serving the needs of your clients is the reason why you exist as a company.
  2. Tools: Effectively managing and measuring client service in a PEO is very difficult without broad and consistent adoption of software, and telecommunication tools, and related procedures by your organization.
  3. Communication: Your clients want frequent and direct communication about the status and resolution of any issues that are open. Proactive communications and thorough follow up are important to insure that the client recognizes your dedication to the success of the service you are providing.

Without the proper investment in all three of these ingredients, the PEO will inevitably be compared to the cost and related value of “do it yourself” or straight payroll processing services. Clearly the PEO value proposition is much stronger than that but it may not be obvious to your clients. Superior client service is what “sells” the value proposition and it ultimately leads to long term partnering relationships rather than a revolving door for clients where the PEO is forever trying to justify their existence. Jordan Conley, Chief Technology Officer for ProService Hawaii, states “We know based on client feedback that our clients value our service as one of the three most important reasons they stay with us.”

The old adage “If it’s not worth measuring, it’s not worth doing” is relevant when it comes to client service. Measuring the cost and return on investment for providing superior client service takes some thought and planning but it is well worth it. Conley says “I firmly believe you can’t improve something you can’t measure. We are very metrics focused, and we publish them openly and frequently. “

Many PEOs consider the analysis of profitability at a client level critical to their business. Often, this profitability measurement is only a partial picture of the actual contribution that a client is making to the success of the PEO. A typical formula for determining the client profitability would be Admin Fees + Margin on Work Comp + Margin on Taxes + Margin on Insurance Products. This formula ignores the true cost of serving that client.

A preferred way of defining the true value of each client in your book is to consider Net Client Contribution. In order to measure the Net Client Contribution, the resources that are employed to provide services to the client need to be factored into the equation as an offset to the administrative fees. Simple allocations of “fixed” general & administrative costs using worksite employee count or gross payroll are certainly better than nothing. But with suitable software tools and some ingenuity, getting a more accurate picture of the true cost of servicing each client can be made readily available.

To start with, the PEO needs to track all client service issues through resolution in a CRM (Client Relationship Management) system. As with most things in life, it is likely that the Pareto Principle will apply to the client service effort with 20% of your clients consuming 80% of the overall client service costs. A good CRM system will provide easy access to the comprehensive cost of resolving service items at the client level.

All client service items (or cases) are not made equal when it comes to resources (staff time, telecom, legal fees, accounting fees, materials, etc.) required to resolve the request. The resources to complete a request can either be discretely tracked with the case or cases can be categorized into groups with a per item cost applied based on the “case type”. Tracking actual resources (time and materials) to resolve a case requires discipline and effort to manage properly, but if done consistently, will result in the most accurate cost measurement. Many CRM systems allow users to seamlessly allocate time spent as they navigate through the system to complete service items and daily work. Applying a standard labor and materials cost for each service item within a case category may not be as accurate on an item by item basis but provides a simple and consistent way to measure aggregate service cost per client.

Tracking payroll runs and other recurring service items as cases and tracking resources to complete the cases will provide a complete picture of cost of standard service. Alternately, a standard per check cost could be applied to each client providing the CRM includes information about active/payrolled employee count and the pay cycle for each employee. Regardless, it is important to get a complete picture of the client contribution to the bottom line.

As the true contribution of each client is defined, a deeper look at the services provided to the best clients will maximize the bottom line effect of investment in service resources. If your most profitable clients rarely, if ever, request an employee background check, then it may not make sense to spend a lot of time developing the procedures and vendor relationships to provide excellent background checks. But if your top ten most profitable clients are consistently looking for help with employee evaluations, it would likely make a positive impact on your bottom line to invest in improvement of those services. If your most profitable clients have the shortest response time on their cases consistently over time, is that a coincidence or a result that should be studied and replicated? Does your CRM alert management staff when “red flag” service items are reported? Analyzing trends in the types of issues that are being reported can enable your PEO to be more proactive in establishing procedures and investing in risk mitigating or opportunity enhancing tools or people.

Investment in client service should have a well-defined objective to either lower the cost of delivering a similar level of service or to increase the level of service without substantially increasing the cost. Keeping costs low or at least constant as the PEO grows (scalability) is typically the expected result when a PEO invests in software or other technology. Technology investment should enable internal staff to be more effective or enable clients to receive the desired result with little or no effort from the internal staff.

A client self-service portal can be expensive to implement and challenging to maintain. However, as the market evolves and business owners become more technologically advanced, the availability of a self-service portal is becoming an expectation. Properly implemented, the cost of delivering superior client service may be substantially reduced. More time and resources can be poured into thought leadership and developing relationships as the effort related to delivering standard services and disseminating basic information is reduced.

Without properly defined objectives supported by strong systems that enable measurement and an efficient and consistent staff, client service will be perceived, both internally and externally, as a necessary evil. When strategic thought and systems are applied to client service, investments can be made in service capabilities that will continue to feed the bottom line.

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