During the three years to 2017, the hourly price of HR consulting services has increased at an estimated average annual rate of 0.3%. Such mild growth in service prices has not had a significantly negative impact on buyer power. Moreover, there has been low volatility in prices during the past three years, which has made it easier for buyers to accurately anticipate price trends and budget for purchases.
Although businesses typically have fairly consistent demand for effective staff, strategy, process, administration and organization management, the price of HR consulting services often fluctuates in line with economic cycles. Increased hiring efforts as well as ongoing regulatory issues surrounding employee benefit plans and health insurance have all contributed to a rising need for HR consulting in the past three years, supporting price growth. In addition, an increase in the number of employees and businesses in the United States has led to an expansion in the pool of potential buyers, boosting demand and contributing to rising prices. However, uncertain economic conditions abroad and faltering oil prices have negatively impacted profitability among a portion of HR consulting buyers. The uncertainly that stems from these factors has slightly tempered demand and price in the past three years.
Falling wage costs have also helped to temper price growth, and heavy competition has helped to mitigate the risk of price spikes. Falling input costs allow suppliers to boost profit margins without significant price hikes. Buyers can take their time making purchases because the magnitude of price growth has been small, and year-to-year fluctuations are unlikely. Still, the hourly rate for HR consulting services is expected to continue rising during the three years 2020. Thus, buyers should consider establishing long-term contracts with vendors now to lock in prices before they increase.
The price of HR consulting services is expected to continue rising at an annualized rate of 1.6% with a low degree of volatility in the three years to 2020, due in part to improvement in the labor market. As the economy improves and more employees continue to enter the workforce, more companies will turn to HR consultants for advice on recruitment, retention, employee relations and determining optimal workplace hours, attendance, pay and benefits.
As the number of employees grows, buyers will increasingly rely on HR consulting to effectively manage their talent and related administrative tasks. Additionally, forecast growth in corporate profit means that buyers will have more resources to dedicate to professional services, including HR consulting. Rising corporate profit will also encourage expansion that often leads to demand for various consulting services, driving prices up. Moreover, ongoing expansion in the number of US businesses will open up new client opportunities for vendors, enabling further demand growth.
To remain competitive, larger vendors are expected to continue to merge and acquire other HR consulting firms through 2020, causing market share concentration to marginally increase and granting larger suppliers greater pricing power. Regardless, prices are not forecast to increase drastically. A growing number of suppliers overall and intense competition among vendors will continue to temper price growth. In addition, average wages are expected to continue declining steadily as a result of the wide availability of labor. As average wages fall, wages are also anticipated to fall as a share of supplier revenue, helping to further mitigate price growth. Still, given the forecast rise in HR consulting prices, buyers should consider contracting for long-term projects sooner than later to lock in favorable rates.