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“You pay your employee $X dollars an hour and you charge me WHAT!?”
If you’re a firm providing temporary staffing solutions, this is a question that you’ll frequently answer. The goal is to show your value as a staffing firm and help explain your staffing agency bill rate. Between the cost of paying the employee and the margin you need to make, there’s a bevy of significant expenses and costs that need to also be covered.
In the past, you could talk through the various underlying components with the client and explain that they would easily face a higher overall cost if they did not utilize your services. In the age of data and analytics, however, clients prefer spreadsheets and reports—cold hard numbers to ensure they’re always working with the right partner and getting the best bang for their buck.
A great way to facilitate this discussion is to provide a cost overview of what goes against your bottom line. A breakdown of the costs in terms of numbers will help explain to the client the investment they’ll make towards this partnership. This cost overview that you review with your client should contain relevant core expenses listed out as line items, as well as variables that can be dynamically altered for each project.
Here’s a quick guide on some key items you should include in your staffing agency bill rate:
Employee Rate and Markup
This is the foundation of the cost overview and the easiest part to walk through with your client. This is the hourly rate the employee needs to be paid, and the margin you need to receive for the work to be worth your time. If your desired margin is higher than what’s typical for the market, this is where you will need to justify your brand and its differentiators.
Because you assume the burden of paying the employees, you also alleviate the client’s need to cover payroll taxes. On top of FICA, a firm also incurs the cost of local, state, and federal unemployment insurance. With standard new employer SUI rates as high as 4 percent in some states, total payroll burden can be significant at more than 10 percent.
A typical full-time employee receives several benefits, including insurance, disability, time off, 401k match, and/or stock options – all of which are costs to the client. By transferring the responsibility of the employee to the staffing firm, this is a 15 – 25 percent reduction in employment cost for the client.
Recruiting and Operational Costs
This piece is the most crucial part of your cost overview, as it provides an outline of everything you need to do to get a qualified employee onto the assignment. This not only includes all recruiting, advertising, and consulting expenses, but also any management, training, administration, and compliance costs that go along with it. Costs for any special equipment needed or checks/tests required for an employee to work would also fall under this area.
Providing an overview of your costs will explain and justify your bill rate in two ways. The client will understand the scope of the services and expenses your firm needs to cover beyond the pay rate, but they also get to see the savings data in various areas that they can now use to champion your services internally.
In today’s market, client expectations are higher than they’ve ever been. Transparency within your process is key to building trust and establishing long-term client relationships.
Want more tips and guides for growing your business? Download the Toolkit: Resources to Grow Your Staffing Firm from the Ground Up for useful resources you can use to better your firm.