How to Make Your First Million: Price your Staffing Agency Services for Success

Many new staffing agency owners first launching their operations don't realize that determining what to charge clients is an art form that goes beyond just increasing a candidate's hourly rate or the bill rate. Identifying a final client rate is a science that considers a wide range of factors, including current market temperature, skillset demand, and candidate shortages. 

Knowing how to strike a balance between remaining competitive and turning a profit can help you achieve pricing success. Here’s a guide to the basics and how to set the tone for profitable staffing:

• Pay Rate
  The hourly rate you will pay your candidate. It’s imperative to know what candidates are earning in your vertical. Knowing what is fair, good and great pay is the difference between getting good and great candidates. Remember that we are in an "Employee Marketplace", underpaying a candidate to secure a higher markup WILL have consequences to your agency. Candidates will leave your assignment for the right pay, stopping the revenue from that assignment, and putting the entire client relationship at risk.
• Bill Rate
  

  The final hourly rate you'll charge to your client. In a candidate driven market (i.e.: 2022), you will likely need to bill more, and in client driven markets it’s really important to know what the client will accept. Keep in mind, some clients have standards/rate cards in place. This is where you have to leverage your agency's differentiators to show the client why you are different from the competition and why your candidate is worth the higher bill rate. This can include deep vertical/subject matter experience and specialization. Additionally, you have to back this up by providing a quick response rate, submitting top quality talent (that is not rejected by the client) and being available to the client at all times.

• Markup
  

  The amount you'll add to your candidate's hourly rate to calculate Bill Rate. Please remember to always calculate the markup amount as a % and not as a $ amount. A $10 markup on a candidate being paid $20 is a decent markup (50%). However, a $10 markup on a candidate being paid $40 is a poor markup (25%). The art and science of markup will require you as an agency owner to establish "Markup Fluency" for every role/job you recruit for. This is a forever changing calculation and requires you to remain on top of this situation. You need to know what "A players" will demand in pay for each role and then what "B+ Players" will require to remain on the project. At the same time, you need to be aware of bill rate tolerance and seriously practice your Agency's Unique Value Prop.

• Hours on Contract
  Estimated length of client engagement, broken down by anticipated hours
• Typical Payroll Burden
  Before determining your markup and bill rate, it's important to consider the typical payroll burden (employee costs). This percentage considers a wide range of minimal legal employer requirements, such as:
  • Federal, State, local taxes
  • Social security tax
  • Federal employment tax
  • State unemployment tax
  • Medicare tax 
  • All Insurances (WC, GL, Professional)
• Average Number of Weeks to Get Paid
  It's critical to determine how long you'll go without receiving payment from the client to gauge cashflow in your staffing agency..
• Direct Hire Fee vs. Temp
  If your staffing agency offers permanent placements and temp-to-perm conversations, it's essential to designate a direct-hire fee. A direct-hire fee can run anywhere from 15-25% of the employee's full-time salary. This is a great comparison point for temp placements. Pro Tip: keep temp fees equal to or greater than your Direct hire fees. 

Operational Costs to Keep an Eye On When Pricing Your Staffing Services

You will also want to consider operational factors as well when establishing pricing to prioritize the overall health of your staffing agency, such as:

• Weekly Top-Line Revenue
  This calculation shows the total you'll invoice your client weekly for contract services rendered.
• Weekly Payroll Expense
  Understanding your weekly payroll expense helps determine the total cost of paying each contractor weekly and the cost of statutory expenses every week.
• Single Temp Weekly Gross Margin
  This line item for your staffing agency calculates the difference between weekly topline revenue and weekly payroll expense to shine a light on profitability.
• Single Temp Lifetime Value (LTV)
  The LTV determines the gross profit throughout the entire length of the contract.

Intangible Factors that Could Influence Pricing For Your Staffing Agency

Finally, some less tangible factors could also influence final client pricing. Knowing who your biggest competitors are and what they are charging for their services could come into play when strategizing how to make your submissions compelling. Additionally, the industry you are staffing for and the job location may also come into play when determining the ultimate bill rate. 

Outsource Your Back Office Support to Drive Profit Margins

Keeping a careful eye on your pricing process isn't the only factor to consider when driving profit margins. It's also essential to run your staffing agency as lean as possible. The Back Office from Headcount Management offers customized back office support services that can help keep overhead to a minimum at your staffing company. Contact us today to learn more.

As a leading provider of back-office support services, Headcount Management recognizes that running a successful staffing agency means more than just filling open job requirements. Strategy is key.