subtitle: PRICING OUT YOUR STAFFING SERVICES CORRECTLY MAKES A HUGE DIFFERENCE TO YOUR BOTTOM LINE
PRICING IS KEY TO PROFITABILITY
Owning your own staffing firm can be profitable, but only if you know what to charge your customers.
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 a sample profit assumption to help determine bill rate, as well as some basic pricing terminology and definitions.
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HOW SHOULD YOU PRICE YOUR STAFFING SERVICES?
SEE THE SAMPLES AND DEFINITIONS BELOW
Bill Rate = Pay rate * (1+Mark-up)
Direct Cost of Labor = Pay rate * (1+Burden rate)
Gross margin = Bill Rate – Direct Cost of Labor
Example: Assume an administrative assistant on assignment has a pay rate of $15. Assume your burden rate is 12%. Assume your mark-up is 50%.
What is your bill rate?
$15 * (1+.5) = $22.50
What is your direct cost of labor?
$15 * (1+.12) = $16.80
What is your gross margin?
$22.50 – $16.80 = $5.70 per hour
The $5.70 hourly gross margin is what you have as a staffing company to cover your overhead and your net profit.
How does mark-up affect gross margin?
Let’s take the same example and calculate using a 30% markup rather than 50%.
What is your new bill rate?
$15 * (1+.3) = $19.50
Your direct cost of labor stays the same: $15 * (1+.12) = $16.80.
What is your new gross margin?
$19.50 – $16.80 = $2.70 per hour
Changing your markup from 50% to 30% has a significant impact on your gross margin. ($2.70/hr compared to $5.70/hr)
|% of Revenue||% of Employee Pay (expressed as markup)|
As you can see, mark-up does not mean profit. This sample has many variables based on your state’s tax rates and workers comp cost but it gives you a way to model your pricing and your profit expectations.
Direct pay given to the temporary workers that you send out on staffing assignments
State Unemployment Insurance Tax Authority (SUTA):Rates and taxable wage limits vary greatly by state to state.
Federal Unemployment Tax (FUTA): Typically the rate is .06% on the first $7,000 in employee earnings. Some states have higher rates due to debts to the federal government.
Social Security and Medicare Tax Rate (FICA): This is a single flat rate to all employers of 6.2% for social security and 1.45% for Medicare tax. This is capped at a salary of $118,500 for each employee in 2015 but changes each year.
Workers Compensation Insurance (WC): WC is an insurance policy that covers work related injury and illness. Workers comp insurance rates vary by skill type, vendor and state.
Gross margin is the amount of money a staffing firm gets to keep after paying the temporary workers payroll, benefits and payroll taxes (statutory expenses). Gross margin dollars are used to pay internal operating costs and owner’s profit.