The effective management of human capital is an essential function of business, no matter how big or small. Without a comprehensive strategy, a business becomes disjointed and at a considerable disadvantage relative to its peers. From recruiting, training, and retaining top labor talent to payroll & taxation and beyond, human capital management extends far beyond just the standard procedures of human resources.
The need for human capital management (HCM) solutions has come increasingly more into focus since the COVID pandemic. Businesses are looking for HCM solutions that not only improve their operational efficiencies, but that can also help them remain competitive and compliant in a rapidly shifting labor environment. The rise of remote and hybrid work has led to significant changes. Not only from an employee management perspective but also from a payroll taxation point of view as well. Businesses are now forced to move at a rapid pace to not only keep up with shifting labor markets and demands but also the resulting compliance implications as well. This is not only challenging for those businesses, but it can also be expensive.
Fortunately, there are HCM service providers that can provide businesses with a comprehensive suite of solutions to tackle these developments and remain not only competitive in the labor markets but also compliant. The total addressable market is substantial, indicating that the opportunity for significant growth in HCM companies is still in the early stages of a bull market.
Global HCM Industry Outlook and a Look at the U.S. Total Addressable Market for Services
Growth for the HCM services industry is estimated to significantly outperform overall global economic growth for the foreseeable future. According to Grandview Research, the HCM industry is estimated to grow at a CAGR of 6.5% from 2025 to 2030. Conversely, the IMF estimates global economic growth to expand around 2.8% to 3% between 2024 and 2030.
Fortune Business Insights believes a significant portion of the HCM market growth will come from the demand for better talent recruiting and retaining tools, especially technologies related to AI, machine learning, automation, and more. In addition, the market research firm sees a growing demand for cloud-based solutions for gaining employee data, engagement, and efficiency insights.
The above-average growth outlook is not surprising considering the potential total addressable market for HCM services. Considering that nearly every company, whether a small business to a large enterprise, is a potential customer for these solutions, the possibilities are quite remarkable. According to Clearly Payments, there are approximately 33.2 million businesses in the United States, as of 2024. This 33.2 million-million figure represents a combination of small, medium, and large businesses around the country. In the context of HCM services, it could be determined that there is a total addressable market of just about 33.2 million potential customers. The total potential value of the addressable market could be worth billions of dollars from a comprehensive point of view.
Asure Software Sees Continued Annual Core HCM Business Growth, Expanding Margins
One HCM service provider that has benefitted from growing demand is Asure Software (NASDAQ: ASUR). Asure features a full suite of HCM services that cover everything from talent acquisition and retainment to payroll taxes, employee wellness, legal compliance, and more.
Since 2021, the Texas-based HCM services company has seen impressive top and bottom-line growth, thanks to the strength of its core business. The company’s core HCM business grew 16% y/y in 2022 from 2021 and then 19% in full-year 2023 from 2022. Asure’s management team is currently projecting revenues to grow double digits again (excluding ERTC) in the full year 2024 compared to last year. This highlights the company’s core business is not only healthy but also expanding as its suite of services and customer base expand.
Bottom-line adjusted EBITDA margins have been equally impressive over the same period. For the full-year 2021, adjusted EBITDA margins came in at 10% before growing to 12% in 2022. Last year, Asure’s adjusted EBITDA margins saw an impressive expansion to 20%. As the business scales we would expect to see the EBITDA margins expand even further.
When considering that 2024 will be the first full year without a large amount of ERTC one-time revenues, the company has executed very well on its plan to replace the one-time ERTC revenues with higher value recurring revenue via organic growth and inorganic methods. During the Q3 2024 earnings release management highlighted the fact that its revenues are now 98% recurring versus 81% in the prior year period. The company’s backlog has also grown by an impressive 250% year over year which indicates they are winning lots of new business that has yet to be recognized in revenues but will be in the future as these new contract wins come online.
Overall, the HCM industry is in a very good position. The shifting trends of the global labor market since the pandemic have ignited demand for greater efficiency and the ability to quickly adapt to these changes. With an estimated total number of U.S. businesses at 33.2 million, the total addressable market is a very large one for HCM service providers to take advantage of this opportunity.
Asure’s suite of HCM services has gained considerable traction in the years since the initial onset of the global pandemic. With a continued focus on expanding its services and providing a fully comprehensive approach to HCM, business clients small and large need Asure’s offering. That top and bottom-line growth is believed to further expand in full-year 2024, according to management. Overall, the future continues to look bright for Asure and the rest of the HCM service industry.
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