How do staffing agencies price their services?
If you’re wondering how staffing agencies come up with their bill rates, you’re not alone. How we price is one of the most frequently asked questions we receive. So, we thought we’d break it down for you to understand how staffing firms price temporary staffing services. First, let’s define a few things.
Bill Rate: the fee a company pays to a staffing agency for the services of a temporary worker. Bill rates equal the sum of the Pay Rate and Markup.
Pay Rate: the amount being paid to the contingent worker (temp employee) by the staffing agency.
Markup: a percentage on top of the Pay Rate.
Most companies expect to see a pay rate, which makes sense because it’s commonly accepted that you pay an employee for their time worked. It’s the Markup that people are curious about. There are many factors that affect the Markup, and ultimately the cost of a hire. In today’s day and age, the following are just some of the criteria that contribute to the cost of hiring a temp (or any employee):
- Compensation level of the resource: as defined above, the Pay Rate is the largest component of the Bill Rate, and plays a significant role in quality of the resource quality, how long it takes to fill the role (it may take longer if the Pay Rate is low, for example) and a company’s ability to retain the employee.
- Duration of the assignment: projects spanning a couple of months will be lower in hourly Bill Rates than short term projects, as we will offer you savings on longer term needs!
- Number of temps needed: the more temps a company needs, the better the pricing we are able to offer.
- Amount of recruitment time needed: it takes us longer to identify niche skill sets and those in high demand, and this time increases our costs of service. Therefore, better pricing is offered for positions which we know we will fill quickly.
- Benefits: Longer Projects (3–4+ months) may be higher in price to cover costs of healthcare benefits.
- Taxes & Insurance: All employees require employment tax, and the type of work being performed will determine the insurances required, like worker’s compensation for example. These costs will be passed through in the Markup.
- Gross Profit: no company should work for nothing, right?
After taking all the above factors into account, Markup percentages can vary quite a bit. But let’s say its ends up at 50% on top of the Pay Rate. Most first time buyers hear a staffing firm say 50% Markup, and think, why in the heck am I paying 1.5 times the cost of paying the employee? While your first thought may be that Staffing Agencies are rolling in the dough, the Gross Profit represents a very small percent of the Markup. Businesses incur many costs when hiring an employee, costs which staffing agencies pass through in the Markup. Then there is the time it takes a Staffing Specialist to find and interview great candidates. Staffing agencies specialize in staffing, so that’s what you’re paying for after all, right?
Hope we were able to help you understand how temporary staffing services are priced. Still have questions?
Ask away! Placers works with clients to offer the best pricing we can based on the specific needs of your business. Discuss your budget with us and we will devise a solution that will work for your business based on both your resource needs and your available budget. It is common for us to make suggestions regarding the type of resource needed, the hiring process utilized, the job functions the temp will be performing, and length of assignment to make sure that you get the resources you need within the constraints of your budget!