Given how closely compareHRIS.com is tied to the HR software industry, I have put a great deal of thought into this question. It’s the kind of question that keeps a start up President up at nights. Oh, by the way, it’s 3:00 AM.
Anyone who has worked in the HR software industry for any amount of time knows they will sell fewer systems in a weak economy than a strong one. I sold my HR Software value added reseller business a month ago. But, over the last year, we lost several deals directly tied to the housing crisis here in Florida and across the United States. I am sure all of our software vendors, or the sales reps for them, could offer similar examples.
Different HR software companies face different risk
While the HR technology industry, on the whole, may be extremely vulnerable to a recession, there are HRIS companies within the industry that may be more or less vulnerable to a recession based on their unique product and purchase options.
Businesses, especially those in the less than 500 employee market, may perceive HRIS or HRMS applications as a luxury as opposed to a necessity. So it stands to reason, that fewer HR stand alone applications will be sold during a recession. Payroll and time collection will be viewed as necessities that can be easily cost justified during a slowing economy. It does not matter how slow the economy is, employees still have to be paid. Therefore, I would think HR systems offering payroll or time collection are going to be more recession proof than those solutions only offering stand alone HR solutions. This may include not only employee database applications but also stand alone recruiting, training management and performance management software companies.
It’s understandable why many in the HR software industry have gone to software as a service or hosted sales model. And I would think these companies would be more immune to the current trends within the economy than the license purchase solutions.
With HRIS purchase solutions, the majority of the profit is earned at the time of the initial sale through the software and consulting costs. Recurring revenue is limited to support renewals which are a small fraction of the original cost. These companies may see sales of add-on products but still the bulk of their income is made on the initial sale. They have to continue to sell new systems to show any type of growth and, in some cases, to survive. As we already established above, fewer companies purchase HR software in a failing economy. As I pointed out, if these companies offer payroll or time collection, they may offset at least a portion of the sales lost for stand alone HRIS.
HR software hosted solutions spread the cost to the prospect over the lifetime of the contract. Thus, their revenue is more heavily acquired from current customers through recurring revenue than being required to make new sales to survive. As long as the majority of clients continue to pay for the service or hosting, these companies should not see as much of a reduction in income as those companies being required to make new sales.
So, how recession proof is compareHRIS.com?
Even though the industry I work in is not recession proof, I believe we are, simply because our risk is evenly distributed across the industry. All of our eggs are not in one vendor’s basket. Currently, we have eggs in 14 separate baskets. If a few vendors are no longer able to budget for the service, we will certainly lose money, but not to the same degree if we only had one or three vendors.
The other issue that will continue to make us safe from a recession is the value we offer compared to our competitors. What many of our HRIS vendors are starting to see is our average cost per qualified lead generated is far lower than many other sites offering HR software lead distribution. This ratio should only continue to show in our favor with the fact that we are still a relatively new site. Given time, our traffic and lead numbers should continue to grow. Actually, every month, since we have published the site, has seen a record month. We don’t expect this to slow in the near future.
There are two ways of driving traffic to a site: you pay for it or you get it for free. Paying for it adds tremendously to overhead and to fees that must be charged to participating vendors. While we currently pay for a portion of our traffic, we see the majority of our visits arriving from our search engine optimization efforts which, of course, is free. Numerous studies have indicated that business professionals are far more likely to click on those websites under the free organic listing than the paid sponsored ads.
We invest far more of our efforts into free traffic. We have done this by syndicating hundreds of HR software related articles, like this one and constantly working on valuable back links to our site. Generating free traffic is time consuming and often tedious. But, in the long run, the result is greater traffic from a wider range of keywords with less overhead; all important benefits during a slowing economy.
Upon reflection, I feel far more comfortable about our recession risk with the business and am going to sleep now.
About the Author
Clay Scroggin worked in the Human Resource and Payroll Software Industry for more than 15 years. During that time, Clay and those who worked with him, assisted hundreds of HR professionals with their HR software needs. In 2007, Clay began working on compareHRIS.com, a site dedicated to assisting HR professionals with their search, selection, implementation and use of HR systems. The site contains several tools including an HRIS Selector Tool.