Professional Employer Organization Services Procurement Category Market Research Report from IBISWorld Has Been Updated

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Due to slow growth in the number of businesses and the high unemployment rate, demand for PEO services has been slack, making it difficult for PEOs to raise prices; demand for PEOs is expected to increase as the economy recovers and the Affordable Care Act is implemented. For these reasons and to help procurement professionals make better buying decisions faster, business intelligence firm IBISWorld has updated a report on the procurement of Professional Employer Organization Services in its growing collection of procurement category market research reports.

IBISWorld industry market research
Demand for PEOs is expected to increase as the economy recovers and the Affordable Care Act is implemented

Professional employer organization (PEO) services have a buyer power score of 3.8 out of 5, reflecting mixed pricing trends, a positive market structure and low market risk. This higher score indicates that buyers have some leverage in negotiating lower prices. Buyers can also look at unbundled rates and pick and choose specific services, rather than purchase all the services offered by the PEO. Recent pricing trends have been favorable for buyers. According to IBISWorld analyst Andrew Yang, the creation of new businesses has been somewhat slow, which has kept demand for these services from rising substantially and encouraged suppliers to maintain lower prices. The main input cost for PEOs, namely wages, has also been fairly stable. With stable input costs, PEOs are less pressured to raise rates to maintain profit margins. However, PEO rates are expected to accelerate in the three years to 2017 as the economy improves and demand increases significantly. The number of businesses is expected to rise and the unemployment rate is expected to fall. Moreover, the implementation of the Affordable Care Act (ACA) will increase the complexity and cost of providing employees with insurance. As a result, many existing and new businesses will turn to PEOs to manage their human resource operations, continues Yang.

Buyers also benefit from widely available substitutes for PEO services. Companies can perform employee management tasks in-house by hiring human resource personnel. They can also use administrative service outsourcing, which allows companies to outsource functions but remain the legal employer of their workers. The existence of these substitutes is favorable because they enable buyers to negotiate lower prices by comparing the price of PEO services with the prices of substitutes.

Market risks are fairly low for buyers because most PEOs are financially stable. Supply chain risks are also fairly low because providers do not depend on any critical inputs that can disrupt the delivery of PEO services. Price volatility has also been low, indicating that buyers do not have to worry about price shocks. These market risks provide security for buyers expecting to form long-term relationships with PEO service providers. For more information, visit IBISWorld’s Professional Employer Organization Services procurement category market research report page.

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IBISWorld Procurement Report Key Topics

This report is intended to help buyers of professional employer organization (PEO) services. Companies use PEOs to outsource employee management responsibilities, helping to cut management costs and the complexity of providing services to employees. PEOs form a coemployment relationship with their clients where the PEO becomes the legal employer of the client’s employees and assumes various functions for the company. PEOs manage and administer four main functions: payroll, workers compensation, employee benefits and human resources.

Executive Summary
Pricing Environment
Price Fundamentals
Benchmark Price
Pricing Model
Price Drivers
Recent Price Trend
Price Forecast
Product Characteristics
Product Life Cycle
Total Cost of Ownership
Product Specialization
Substitute Goods
Quality Control
Supply Chain & Vendors
Supply Chain Dynamics
Supply Chain Risk
Competitive Environment
Market Share Concentration
Market Profitability
Switching Costs
Purchasing Process
Buying Basics
Buying Lead Time
Selection Process
Key RFP Elements
Negotiation Questions
Buyer Power Factors
Key Statistics

About IBISWorld Inc.
IBISWorld is one of the world's leading publishers of business intelligence, specializing in Industry research and Procurement research. Since 1971, IBISWorld has provided thoroughly researched, accurate and current business information. With an extensive online portfolio, valued for its depth and scope, IBISWorld’s procurement research reports equip clients with the insight necessary to make better purchasing decisions, faster. Headquartered in Los Angeles, IBISWorld Procurement serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit or call 1-800-330-3772.

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Gavin Smith
IBISWorld Inc.
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