Calculate How To Price Your Staffing Services
Last time updated: 7 September, 2023
Last time updated: 7 September, 2023
Last updated on September 7th, 2023 at 08:59 pm
So you’ve started a staffing firm or are thinking about starting one. Now, what should you be charging customers to keep competitive and still make a profit?
Owning a staffing firm can be profitable, but only if you know what to charge your customers. Charge too much; you might lose contracts to your competitors. Too little, and you are undervaluing your services and cutting into your profit margin. Striking the right balance is key and a big challenge for this competitive industry.
To succeed in your staffing business, you need a comprehensive understanding of pricing and everything that goes into it. To get you started, we have laid out some basic pricing terminology and definitions, as well as a sample profit assumption to help determine your bill rate.
Pricing correctly is a difficult balance to strike, so we’ve compiled a few simple points to keep in mind. For a more in-depth look into pricing, download the free How To Price Your Staffing Services whitepaper.
Bill rate is the rate a company pays to a staffing agency for the services of a temporary worker. There are several components of pricing to take into account when figuring out your bill rate.
Learn more about our staffing and recruitment payroll tax services and solutions.
The average staffing agency markup for temporary employees or independent contractors can range anywhere between 20 – 75%. Permanent placement markups are typically 10 – 20% of the employee’s gross annual salary.
Let’s say you have an administrative assistant on assignment who has a pay rate of $15. Assume your burden rate is 12%. Assume your mark-up is 50%. The formulas you need are as follows:
Now let’s put the numbers into the formulas.
The $5.70 hourly gross margin is what you have as a staffing company to cover your overhead and your net profit.
Let’s take the same example and calculate using a 30% markup rather than 50%.
$15 * (1+.3) = $19.50
Your direct cost of labor stays the same: $15 * (1+.12) = $16.80.
Changing your markup from 50% to 30% has a significant impact on your gross margin. ($2.70/hr compared to $5.70/hr)
The Advance Partners Profit Margin Calculator is a tool for estimating gross labor profit only and is not intended to be a comprehensive calculation of net profit as it only takes into account the categories for which data is entered. I understand that by clicking “CALCULATE”, I agree with the above and hold Advance Partners harmless for any action I take in my usage or reliance upon of the information generated based on this calculation.
According to the Gross Margin and Bill Rates Trend report from Staffing Industry Analysts, the gross margin among staffing firms is typically between 14 and 41 percent, with an average aggregate gross margin among temporary staffing firms of 25%. While industries vary, profit margins in staffing are typically healthy, if not huge.
No. Statutory fees can vary widely based on location and skill set. State unemployment insurance costs can vary by state as well as supplier. For example, one supplier may have 10% higher SUI fees in one state over another.
Besides the statutory expenses and gross margin, there are factors to consider, including the number of temps needed, duration of the hiring process, amount of recruitment time required, compensation level of the resource, etc. Your markup can vary based on these factors.
Some buyers might balk at a 50% markup, thinking that your firm is intentionally gouging them to make a considerable profit. That is not usually the case because the majority of the markup will pay for expenses with a bit of leftover for profit. Unless they have intimate knowledge of payroll or accounting, some customers simply are not aware of what it costs to be an employer. The buyer should also be mindful of the costs they are saving by hiring a temporary worker: benefits, training, vacation, etc.
No. Typically, a staffing agency defines custom pricing based on a client’s anticipated volume, rate management approaches, location, turnover rates, ease of filling the skill set, and knowledge relative to the applicable bill rates.
When starting a firm, we think there are four key things you must consider:
The people you hire are by far your most important asset, and sound technology infrastructure is critical. For a new firm, you will need various insurance policies such as Worker’s Compensation. Finally, you’ll have to secure the appropriate working capital. Startup temporary staffing businesses have significant and immediate cash flow needs. It’s up to you to figure out which financing option works best for your goals.
Get notified about the latest AP blogs and resources on staffing topics
Strictly Necessary Cookies should be enabled at all times so that we can save your preferences for cookie settings.
If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.