If you’ve never had the fortune to labor as a consultant, you might be surprised how much of my life has been spent waiting in the boarding area of an airport. Hours drip slowly past as I wait for flights while trying to ignore the unceasingly news reports on the TV monitors. I’ve come up with a game to pass the time. My amusement isn’t the traditional road trip game of “I Spy…” Instead, I try to guess what city a plane has arrived from based upon what I see the disembarking passengers wearing or carrying. It’s totally fun and keeps my simple mind amused. Are they wearing coats? Must be from the North. Shorts and sunglasses in the winter? They can’t be from Kansas City! It’s not as easy as it sounds. Seeing a Dallas Cowboys jersey isn’t a sure sign of a Texan as the team is pretty popular nationally (or at least were at one point!). However, a Cubs ballcap is a sure sign of a die-hard Chicagoan. If I see a scarf, is it team colors? Is there a “Property of…” sweatshirt? It might seem silly, but it keeps me entertained as the folks file past.

My Sherlock game always comes to mind when the employers we’re working with ask about HR technology costs. Very often someone wants to know the price for benefits administration or some other service, but we all know that very simple question can’t be determined at face value. For example, scope of services can dramatically change the answer as adding a call center might bump up the cost by $1.50-2.50 per employee per month (PEPM), or plan complexity could require a top-shelf system that commands an extra couple bucks per employee over a more average solution.

If you’ll forgive me for perhaps oversimplifying a complex chain of complexities and costs, I thought we might play a little guessing game together and see if we can come up with the cost of a benefits administration system. This is one of the most common ways we help employers. We see so many pricing proposals for so many types and sizes of employers that we’re able to aggregate the pricing into a rough estimate of average cost.

Our target is a standard, web-based benefits administration solution. To be a smart steward of our purse, we’d want this to be SaaS (Software-as-a-Service) to keep the costs as low as possible, and we’d want to look at only reputable vendors that have already made the investments in infrastructure and security we’ll need to protect our data.

Of course, the size of the employee population matters tremendously with this puzzle as all of these systems get more affordable with larger populations. And as a quick note, we’re talking about benefit-eligible employees here, since the vendors will charge based upon any potential employee even if they don’t elect coverage.

Also, we need to determine if this is a stand-alone system or a module we’re going to add from an existing vendor relationship. Often the costs are 20-50% less if you’re just adding on to an existing ADP or other all-in-one vendor contract.

Once we know the types of solutions we’re looking at and have a couple vendors in mind, the price comparisons begin. Since software vendors often play leapfrog in functionality, ease of use, and user experience, the data we had on pricing from our last trip out or even our impressions of those vendors most likely will not be valid. Refreshing both the pricing and perceptions of the vendors is critical for an up-to-date selection.

For our work, we build a Total Cost of Ownership (TCO), which is often just as complex as some of the Total Compensation Statements you’ve likely received over the years. Ours breaks out costs into one-time fees (such as implementation costs or integration / EDI work) versus on-going fees (such as the PEPM). It’s important to include labor changes if a new solution is going to require additional staff or repurposing some of the workers you already have deployed. Ancillary services—COBRA, ACA, and Spending Accounts—can all impact the TCO as well, so cast a broad net with all changes connected to the system change.

The TCO can be re-broken down into a PEPM for an estimated service delivery cost for comparisons of before & after. This can also be used for service chargebacks if your organization distributes the costs of shared services. If someone’s advertising Ben Admin for $5 PEPM, is that a good deal or not? That’s why we need our TCO. Your costs will vary from ours, but your current contracts and services are a great place to start to truly understand your cost for benefit administration and, just as important, which offers from the marketplace you should consider.

Hopefully, this article has given you some insight into how we consider the costs of a Benefits Administration system. Of course, we’re always standing by to chaperone an employer into the research phase of this process, so please don’t hesitate to contact us if we can be of help.