Economies of scale are associated with firms offering staffing-related services

The likelihood of a firm expanding its service offerings is strongly associated with firm size.

As part of our 2012 Staffing Company Survey, conducted last September, we asked staffing firms to tell us which of eight staffing-related services they currently offer, or would be likely to offer within the next two years:

  • Vendor management system
  • Human resources outsourcing
  • Managed service provider
  • Recruitment process outsourcing
  • Independent contractor compliance services
  • Human resources consulting
  • Master supplier
  • Payroll processing

In reviewing the results, we stumbled upon an interesting finding — the likelihood of a firm to offer any of these services is strongly associated with firm size — and for some services, there is a “trigger” size, where the percent of firms offering a service rapidly increases.

Let’s take RPO, for example, which was the service respondents stated they’d be most likely to expand into — only a quarter of firms with revenue less than $120 million offer it. As firms move from $25 million to $50 million to $75 million in revenue there is almost no change in their likelihood to offer RPO. Only when revenue starts hitting $120 million is there a tremendous, almost discrete jump, from a quarter of firms of that size, to around 40 percent of them, and the number only goes up from there. Half of firms with revenue between $100 million and $500 million offer RPO, as do nearly three quarters of firms with revenue above $500 million.

IC compliance services also has a trigger size of around $100 million, while other services trigger at higher revenue figures. The trigger size for offering a VMS is closer to $250 million; HRO’s is around $500 million.

But even while firms’ likelihood to offer some services display evidence of size triggers, not all of the services we tracked necessarily follow the same trend as RPO. For instance, although the percent of firms offering VMS displays an upward trend before its trigger size, after that size, the relationship isn’t as clear.

The one noticeable non-conformist in the crowd is IC compliance services. The percent of firms offering IC compliance services does rise sharply at $100 million in size, but at lower and higher sizes, there is little change in the percent of firms currently offering it.

Master supplier, MSP, payroll processing and human resources consulting do not display evidence of triggers at all. Offerings of these services are more gradually related to firm size.

For the others in the pack, it is likely that economies of scale associated with these services explain their relationship to firm size. That being the case, when considering offering these services, it might be wise to remember the wisdom of crowds, and bear in mind that a successful launch may be more likely when a firm has reached the critical mass necessary to make it work.