I have put a great deal of thought into how the HRIS Software Industry will be impacted by a recession. It’s the kind of question that keeps owners of start up companies up at nights.

Anyone who has worked in the HRIS software industry for any amount of time knows they will sell fewer HRIS systems in a weak economy than a strong one. I sold my HRIS 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 HRIS software vendors, or the sales reps for them, could offer similar examples.

Different HRIS software companies face different risks while the HRIS industry, on the whole, may be extremely vulnerable to a recession although 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, HRIS software systems offering payroll or time collection are going to be more recession proof than those solutions only offering stand alone HR Software Solution. 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 HRIS 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 software 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 HRIS software companies may see sales of add-on products but still the bulk of their income is made on the initial sale. These companies have to continue to sell new systems to show any type of growth and, in some cases, to survive. As we have already established above, fewer companies purchase HRIS software systems 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.

HRIS 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 HRIS software companies should not see as much of a reduction in income as those companies being required to make new sales.

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.

If companies invest most of their efforts into free traffic I think that they will ride out this recession. We have done this by syndicating hundreds of HRIS software 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. This is important to survive the recession.

Upon reflection, I feel far more comfortable about our recession risk with the business.