March 29, 2005 -- Outsourcing human resource functions is getting cheaper for small businesses - but not as cheap as it is for larger businesses.

According to a new report from Dallas-based Everest Research Institute, the cost to small businesses fell by over 25% in the last five years. However, during the same period, larger businesses saw price reductions of more than 40%.

Everest's report, the Human Resources Outsourcing Annual Report 2005, noted that between 1998 and 2002, the average price point for small businesses was $1003. By 2004 it had dropped to $740. For big businesses during the same period the average price declined from $673 to $397.

The report also found that the pace and number of small-client transactions exceeded that of large businesses. Just over half of the 65 deals the Everest Group surveyed were in the small business segment.

Business from smaller clients is growing, however, as outsource vendors' ability to serve them improves. As such, over the last two years, HR outsourcing among small businesses has gone up considerably: Of the 65 HR outsourcing deals between 1998 and mid-2004, that the report analyzed, 37 involved small businesses.

Two or three years ago, few suppliers could service small businesses. The industry lacked the mechanisms to build economies of scale and kept suppliers from developing viable offerings for small businesses.

That has changed rapidly with suppliers developing systems to serve multiple clients off a single platform, said Michel Janssen, managing research director, at the Everest Institute.

"Small businesses don't have a lot of money to spend on expensive software products. HR outsourcing offers them a way to lower expenditure while getting the best functionality," said Michel Janssen, managing research director, Everest Institute. "It's like getting a new car without paying a big upfront," he said.