Far more than a question of cost
Nexoris has been working with several dozen IT Services Companies and Consulting firms for many years. One of the services we provide them is Payroll Management Services intermediation. A service built up over the years, which our partners sometimes use for many engagements. We surveyed them to better understand their habits and expectations.
A reminder: what are Payroll Management Services?
Payroll Management Services, sometimes also known as administrative outsourcing, is an intermediation service. It allows you to deliver your services to Key Accounts even when you are not on the approved supplier list. How? By leveraging the approved supplier status of an approved company in exchange for an intermediation commission.
This service can cover a wide range of professional services, such as IT and business expertise, project management, coaching, training and more.
Who benefits from the service?
Mainly small companies, or those founded less than 3 years ago. It is often more difficult for them to meet the requirements of supplier-approval processes.
More than 60% of our partners use Payroll Management Services and do so with multiple end clients. For 80% of them, it represents a significant share of their business, which tends to decrease as their company matures.
What drives IT Services Companies and Consulting firms when choosing their payroll management intermediary
Payroll Management Services is appealing first and foremost because it provides quick access to Key Accounts without going through a supplier-approval process first. The approval step can happen later, once the end client has tested the quality of the services delivered.
The second argument, mainly mentioned by smaller companies, is that it lets them focus their energy on identifying needs rather than on administrative tasks.
Third, users feel less directly and strictly bound by procurement rate cards. This may be true for some niche players. We observe, however, that most of the time the rate cards applied to the Payroll Management Services intermediary also apply to the IT Services Companies and Consulting firms using it.
Our community also frequently mentions their interest in working with an intermediary that is approved at multiple Key Accounts, again to streamline administrative processes.
Payroll Management Services at what cost?
Our partners report having seen Payroll Management Services offers billed between 3% and 15% of the client rate. A majority of respondents quote a payroll management commission range between 5% and 7%. 3% is rarely seen and only under significant volume conditions or as an exception, to make a deal possible under tight budget constraints.
Offers billed at more than 10% generally come from intermediaries that have not industrialized this service and only offer it on an exceptional basis. This is the case, for example, with some large Consulting firms.
Beyond cost, what practices are sought?
We surveyed our community on the other criteria they consider important when choosing their Payroll Management Services intermediary. At most Key Accounts, several Payroll Management Services intermediaries are available so as not to create a monopolistic setup.
The factors that come up most often are practices that build trust. Our partners cite transparency and direct, unrestricted access to end-client contacts. They also bring up the fact that the partner does not use the information shared to pitch its own solutions to the end client. The Payroll Management Services intermediary is not a competitor. Above all, it should position itself as a partner, and a long-term one at that.
Coming in second are on-time payments, responsiveness in communication, and the absence of non-compete clauses.
Going beyond Payroll Management Services
For most partners, after experiencing the Payroll Management Services intermediation and once trust is established, additional expectations emerge.
Some members of our community also want to belong to a community of IT Services Companies and Consulting firms. A community that would let them build joint offerings and deliver services they could not offer on their own.
They also express interest in being part of an ecosystem that gives them access to RFPs. And above all, RFPs aligned with their areas of expertise. Needs coming from end clients or other ecosystem partners. Here too, trust plays a major role. Among partners, but also with end clients, who must have full transparency on the proposed solutions.
In conclusion
For many IT Services Companies and Consulting firms, in some industries where supplier panels and approved-supplier lists are the norm, Payroll Management Services remains a necessary path. But it is also a solution and a convenience offered to both end clients and service providers, bringing flexibility to the way business gets done.
A convenience and, in a way, an activity heading toward commoditization. Over time, we can expect the market to consolidate, likely around about ten main players. As a result, we should no longer encounter Payroll Management Services delivered by players for whom it is a side activity, with commission rates of 10% or 15%.
While cost matters, other factors are highly valued by users of the service. Factors that drive business growth, such as being approved with many end clients. Factors that build trust, like transparency and on-time payments. Our partners also mention proximity, responsiveness, and the fact that a Payroll Management Services partner does not behave like a competitor.
Other expectations are emerging, other services beyond simple Payroll Management Services. They rest on the payroll management intermediary's ability to build a community of freelancers and small IT Services Companies. An ecosystem with shared interests that supports talent search or placement and the building of joint offerings. Could this be the future of Payroll Management Services?
