The beautiful thing about popcorn is that you start with small kernels and, handled properly, they become big fluffy, yummy pieces of puff, which are about 20 to 50 times the size of the original kernels.
PEO profitability is much the same way. This month’s feature provides insight into this.
First, you must evaluate into your PEO’s performance. Define what you will measure to determine your profitability, examine the drivers behind your business, and interpret the results.
Avoiding margin erosion is key. Some of these eroding forces are commoditization, selling a product over a service, failing to recognize costs, and rising compliance costs. It’s important to address these before they become threats.
Because your PEO is like no other, metrics and key performance indicators give you specific knowledge about maximizing your profitability. Industry benchmarks provide the baseline; customizing them with your numbers provides a drill down for additional insights.
There has been a surge in acquisition activity among PEOs recently, and many companies are incorporating it as a strategy to reach profitable growth goals. Acquiring PEOs can achieve synergies and diversified product offerings. PEOs looking to be acquired can increase shareholder value and access technology. The key is a sound financial process and a strong integration strategy.
Many PEOs diversify their offerings, service lines, or products to enhance profitability. One PEO, however, has diversified in an innovative way: It accessed technology resources by being purchased by a large IT and connectivity company that wanted to partner with companies serving the small and mid-size business market. The PEO’s profit margins have increased by integrating these technologies for its clients, receiving more warm leads from other business units, and raising the bar on its insurance programs.
We hope this feature will help you get your PEO’s profitability-a-poppin’!