HOW A RETIREMENT PLAN CAN POSITIVELY AFFECT CUSTOMER LIFETIME VALUE

Businesses will always look for ways to trim expenses and prepare for the unknown when faced with growth-slowing factors like volatile interest rates, inflation, job insecurity, foreign conflicts, domestic culture wars, and political gridlock.

According to the U.S. Chamber of Commerce, the biggest challenges small businesses face are inflation, credit access, rising interest rates, hiring and employee retention, and supply chain disruptions. The reality is that, even when big companies and the stock market are booming, Main Street can be struggling and much less confident.

Especially at times like these, PEOs should focus on the basics, including revenue retention and customer acquisition. They’re being offered another opportunity to build long term customer satisfaction and deliver long term benefits.

PEOs provide an array of cost-saving support services that help clients retain great employees and attract new ones. Client-employers benefit from HR consulting and outsourcing, payroll administration, health and welfare benefits, dental, vision, voluntary, and workers’ compensation insurance, safety training, tax reporting, FMLA and unemployment administration, and compliance.

DELIVERING VALUE

Especially during tough times, clients watch every dollar they spend, searching for ways to reduce healthcare costs or trim payroll provider fees. They can’t be blamed for their caution but may become so focused on today they lose sight of tomorrow. You can help them avoid that mistake.

Of all the business-enhancing services PEOs offer, one is sometimes overlooked, or seen as an overhead expense to be avoided, but never should be. A quality retirement plan can add great value for both the employer and the PEO supporting them.

Successful PEOs make it a priority to foster long-term profitability and growth by helping their customers look ahead. The cost of acquiring a new customer is said to be at least five times higher than the cost of retaining one. And remember that existing customers are always more ready to buy – as much as 14 times more likely to make a purchase than prospects, according to Forbes and other sources.

Offering a comprehensive retirement plan is a great idea for any PEO and can be the kind of anchor product that holds clients, even in turbulent times, by delivering meaningful customer lifetime value (total revenue over the life of the relationship).

SMART LEVERAGE

It’s time for your clients to learn more about highly leverageable retirement plans, particularly Pooled Employer Plans (PEPs) and Multiple Employer Plans (MEPs). These pooled retirement plans can create outsized value not found in the open market.

Employers can mistakenly worry about the costs, fiduciary risks or administrative burdens, but the fact is, MEPs and PEPs increase buying power and scale through the aggregation of assets. They provide the cost benefits and risk reversal clients are looking for, while creating tangible value for their employees. Once this is understood, these plans help open the door to new business.

DOING THE MATH

Industry veterans will tell you that PEOs offering access to an intelligently designed, well-supported 401(k) plan will keep their clients longer.

Consider a client that generates $15,000 gross profit per year and stays with their PEO for five years. That makes their lifetime value to the firm $75,000. If the PEO begins offering a retirement plan, and the client becomes an “adopting employer” by joining the plan, they will be much less inclined to end the relationship.

Of course, your goal is to keep adding value, creating greater ROI and strengthening these relationships, but by retaining your client for even five more years, you’ll add another $75,000 gross profit and double their lifetime value to your business.

That’s the power of retention based on greater customer satisfaction and a comprehensive package of high-quality services. A retirement plan is the kind of “sticky” service that can strengthen and extend client relationships, generating more customer lifetime value at lower cost.

HIGH STAKES, AND A WIN-WIN-WIN

Small businesses thrive on staffing stability, and every employee wants the peace of mind that comes with feeling ready for retirement.

According to a 2023 Forbes survey, 40% of employers say workers leave to find better employee benefits, and one in 10 workers say they would take a pay cut in exchange for better benefits. And that’s not all. A recent report by the TIAA Institute found that:

• 42% of U.S. adults say money worries negatively impact their mental health.
• Financial stress has resulted in a 34% increase in absenteeism and tardiness.
• Financially stressed employees are five times more likely to be distracted by finances while at work.
• Those same employees miss two times more days of work than their less stressed colleagues

Retirement plans offer so many advantages to the people who are most important to your business. Plan participants can save for a more comfortable future, assisted by the auto enrollment and auto escalation features mandated by the SECURE Act 2.0. Your clients can enjoy reduced employee turnover and more profitable business. And not least, your firm can benefit from a more loyal client base and longer-lasting relationships. It’s a win-win-win!

NEXT STEPS FOR YOUR PEO

The CallMiner Churn Index has found that customer churn costs U.S. providers a minimum of $168 billion per year. Don’t become part of that statistic. You’ve worked hard to acquire your clients and can do even more to retain them by offering a well-designed retirement plan.

If your PEO already has a retirement plan, look for new ways to optimize, promote, and maximize its value. Seek guidance from a trusted provider. And if you don’t yet offer a plan, be sure to look into pooled retirement plans.

Any top-level recordkeeper should offer these services:

• A plan audit to identify areas where enhancements are possible.
• Quarterly reviews to stay aligned with your business and marketing plans.
• Compelling sales tools to help promote your plan and attract new participants.
• Assessment of your book of business to target prime candidates for a retirement plan.

Consider making a retirement plan part of your PEO’s offerings. Learn more about the successful HR generalists increasing visibility, boosting client satisfaction, reducing attrition, and enjoying robust sales. You might discover that your new retirement plan has become a real profit center.