If you were hoping for a relatively calm year after the rollercoaster ride that was 2022, we have some bad news for you. Expect more turbulence in 2023 — at least in the background screening industry.
As we noted in our last post (a recap of the top five trends that shaped our industry in 2022), with an economic downturn looming, inflation continuing to plague American consumers and businesses, and a softening job market, CRAs and background screening companies will face as many challenges in 2023 as they did in 2022.
Things may even get more unpredictable.
“I think what we can all agree on is that in 2023, we will be under some sort of recession, either one that fits the textbook definition or one that disrupts businesses but skirts the formal definition — and that's a scary thought for everybody in the industry,” InformData Chief Marketing Officer Nick Fishman told attendees representing over 200 individual CRAs during a recent webinar.
But, Fishman pointed out, regardless of how the uncertainty in the economy manifests itself, there’s a significant silver lining for CRAs.
“Our industry, every single time we’ve gone into recession, has come out much, much stronger than beforehand,” he said.
This article is about not only preparing your CRA to weather a stormy 2023 but positioning your business for long-term success and stable growth no matter what the economy throws its way. According to our team of background screening industry experts, making the following five adjustments will help your CRA survive 2023 and thrive for years to come.
Pro Tip #1: Focus on Marketing Strategy
While inflation has leveled off somewhat from its peak this summer, prices remain sky-high, especially for housing and energy. Many experts predict a recession this year — if we are not already in one — with a long road to recovery.
Waves of layoffs and hiring freezes have swept the background screening industry, and many CRAs have been forced to increase their prices for the first time in years. In response, end-users are reevaluating their buying behavior, and some are cutting back on additional services and high-dollar screening packages.
CRAs should prepare now for economic uncertainty in 2023, our experts advised. Don’t neglect the opportunities that these tough periods can bring, such as innovative process refinements, the chance to acquire talent let go by other organizations or outsourcing to move more fixed costs to variable costs.
One thing not to overlook in 2023 is a strong marketing message. With their focus on value, end-users will be paying attention. If your customers can’t tell you in 30 seconds why they choose to do business with your firm, you’re at risk. Distinguish yourself. Focus and make sure your value proposition is clear, well articulated and shared often.
“I've already begun to see signs of this, as evidenced by the number of people that are opening up our emails and engaging with our content,” Fishman said. “CRAs, if you want to stay top-of-mind with your clients, make the investment in continuing to stay in touch.”
Pro Tip #2: Don’t Be a Bystander
While there were some bright spots (30+ new terminals in Cook County, Ill.), CRAs saw an overall decline in information access in 2022. Terminal time was limited in some jurisdictions while debates raged in other areas about redacting key PII, such as previous addresses. These issues are sure to continue through 2023.
Sometimes, it can feel as if there’s nothing to be done but wait for these debates to play out in the courts and find alternative means for sourcing critical background screening information. But that’s not necessarily true.
Fishman recommends getting involved with organizations such as the Professional Background Screening Association (PBSA) and the Consumer Data Industry Association (CDIA) — and encouraging your end-users to do the same. Their advocacy, petitions, and letter-writing campaigns have had a significant influence on policymakers in the past.
If possible, assign someone in your company to join a committee or at least monitor activity from the PBSA and CDIA. Look for ways to collaborate with your data suppliers to address access challenges.
Pro Tip #3: It’s a Buyer’s Market; Plan Accordingly
A few high-profile acquisitions in 2022 may have given the impression that 2023 would bring even more consolidation in the background screening industry. But consolidation is actually slowing, as one would expect during a difficult economy. CRAs will have a hard time achieving the multiples that venture capital and private equity firms like to see.
So, buyers will be in the driver’s seat in 2023, but that doesn’t mean acquisition is out of the question. Smart buyers know there are reasonable deals to be had and will scrutinize CRAs’ value very closely.
“If you’re thinking about selling, give close consideration to what the business is really worth,” Fishman counseled. “Like every other business right now, you really need to be paying attention to your EBITDA [earnings before interest, taxes, depreciation, and amortization]. Sure, your revenue is going to go down, but you don’t want your cost line to suffer at the same time.”
Alternatively, Fishman said, “You might just want to wait this out. And if you do, make sure that you can tell a good story about what happened during this recession and how you emerged from it successfully.”
Pro Tip #4: Look to the Supply Chain
In fact, outsourcing at any time can allow your CRA to focus on what you do best while allowing a trusted and proven partner to take everything else off your plate. This is exactly how Apple became a household name in technology. (Apple, known for making phones and computers, does not actually manufacture these popular products.)
Something to keep in mind during the coming year is that your clients will be looking to control costs, as well, by downsizing and outsourcing the administrative areas they can no longer support. This will allow your CRA to pick up the slack for an affordable, predictable price. The right outsourced data provider will help you accommodate the extra work volume without sacrificing quality or efficiency.
Pro Tip #5: Get As Close to the Data As Possible
As the economic situation worsens in 2023, competition among CRAs is bound to intensify. To avoid a margin-destroying race to the bottom on price, our experts recommended differentiating your business by delivering on the five metrics end-users value most highly: accuracy, turnaround time, customization, transparency, and cost-effectiveness.
You can do this by eliminating unnecessary layers and getting as close to the original background screening data as possible. We call this a Direct-Source Data® strategy.
Direct-Source Data helps CRAs compete because it puts them in control. There are fewer third parties to wait on as data changes hands and fewer opportunities for human error. The process is transparent from end-to-end, and reports can be customized easily and delivered rapidly.
So, we’ll end with the ultimate pro tip for 2023: Gain a competitive edge by choosing Direct-Source Data to provide the value that your CRA’s brand delivers. Once you’re direct source, closer to the data, you have the flexibility to outsource and adjust business models without fearing that you won’t deliver on time, will get caught flat footed with price uncertainty or risk inaccurate results.
As Vince Brodt, InformData’s Executive Vice President for Sales and Strategic Accounts, noted during our webinar, the question CRAs used to ask data vendors was, “How many times a week are you visiting this court.”
Now, a better question would be, “Are you Direct-Source Data?”
“How many steps are there between you and the data? That should be on every RFP, every email, every response to pricing. It should be, how many steps are there between you, who I’m buying from, and the person that could be going to that court? That's the real next layer to drill down into.”
Ready to learn more? Schedule a time to chat with our Direct-Source Date experts or read our ebook: How Direct-Source Data Improves Turnaround Time and Accuracy.