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.
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.
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.