So you’ve started a staffing firm, or are thinking about starting one. Now what should you be charging customers in order to keep competitive and still make a profit?
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 in to pricing, download the free How To Price Your Staffing Services whitepaper. We also have a tool to determine your desired profit margin with the Staffing Profit Margin Calculator.
The Components of Pricing
There are three main components of pricing to take into account when figuring out your bill rate: gross margin, statutory expenses, and pay rate. The pay rate is the direct pay given to the worker, and makes up the majority of the bill rate. The other two components of pricing are considered the markup. The first part of the markup is statutory expenses, sometimes called the burden rate, which includes taxes, insurance, and other charges required by law. The second part is the gross margin, the extra money you charge in order to cover overhead expenses while still making a profit.
COMMON QUESTIONS ON PRICING
Q: What should my margin be?
A: 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.
Q: What are the factors I need to consider when determining my markup?
A: Besides the statutory expenses and gross margin, there are factors to take into account including: number of temps needed, duration of assignment, amount of recruitment time needed, compensation level of the resource, etc. Your markup can vary based on these factors.
Q: Should I use the same pricing/flat rate for all clients?
A: 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.
CONSIDERATIONS BEYOND PRICING
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 a good technology infrastructure is key. 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.
For a more in depth look in to pricing, including definitions and more questions and answers, download the free How To Price Your Staffing Services whitepaper. If you have specific questions, give us a call at 866-653-1810.