In the three years to 2017, the average price of reference and background checking services has been increasing at an estimated average annual rate of 1.4%. Demand growth has been pushing prices upward during the period, although competition has limited the rate of price growth.
As the broader economy has grown, hiring has picked up, driving demand for services. In addition, rental vacancy rates have decreased as lingering economic uncertainty has led many potential property buyers to instead rent. Landlords represent a large buying segment for suppliers of background checking services because they conduct checks on potential tenants. As demand for housing rentals has increased, the decline in rental vacancies has driven demand for background checking services. The overall increase in demand has been the primary driver of price growth.
Fortunately for buyers, price growth has been slow due in large part to the high level of competition in the market. These services used to be conducted manually by phone and fax and, thus, required a higher level of labor. In the early 2000s, providers began offering reference and background checking services online, reducing their labor costs and boosting profit margins. As a result of high profit margins, in conjunction with low barriers to entry, many new operators have entered the market, creating stronger competition. Although prices have increased, competition has prevented prices from rising at a more rapid rate.
Prices for reference and background checking services have also exhibited a low level of volatility. Suppliers' costs are mostly related to overhead and wages, which tend to change slowly. Therefore, buyers are not subject to wide price fluctuations as a result of supply chain issues. Competition has also played a role in limiting price volatility because implementing sharp price spikes could result in a supplier losing customers to competitors. Low volatility enables buyers to accurately budget for purchases. Overall, these factors provide buyers with positive purchasing conditions.
Prices for reference and background checking services are forecast to grow at an average annual rate of 0.6% during the three years to 2020. In addition, price volatility is forecast to remain low. Low supply chain risk, relatively stable operating costs and robust market competition will help prevent significant fluctuations in price, allowing buyers to effectively plan and budget for purchases.
As the economy continues to grow, more firms will increase their hiring. The number of employees in the United States is projected to increase at an annualized rate of 0.5%. According to the Society for Human Resource Management, most employers conduct background checks on job applicants. Therefore, increased hiring is expected to boost demand for reference and background checking services, contributing to price growth. In addition, regulations on this market's services are expected to tighten. Concerns over privacy, data accuracy and potentially unfair hiring practices will result in greater oversight over the way in which background checks are conducted. Increased regulation and fees for accreditation programs may raise costs for suppliers, contributing to service price growth.
Fortunately for buyers, competition is expected to help moderate growth in prices and broaden the range of service offerings in the next three years. Due to slow price growth and low price volatility, the forecast price trend is positive for buyers, and buyers do not necessarily need to enter into long-term agreements with suppliers to lock in prices now. Slow growth will enable buyers to take their time making purchasing decisions to find the best deal, although purchasing sooner rather than later may result in slightly lower prices.