Starting a staffing agency can be an incredibly profitable business venture. However, in order to reap such profits, you need to establish a pricing model that will work for your clients and your bottom line. One of the most important factors in determining your pricing model is the average markup rates you charge.
In this article, we’ll discuss what staffing agencies charge their clients and how markup rates are determined. We’ll also outline different pricing models and how to calculate the actual cost of labor.
Average Staffing Agency Markup Rates & Other Fees
The cost of labor can be one of the most significant expenses for staffing agencies. So, it’s important to markup staff wages.
Staffing agencies typically charge clients a percentage on top of the employee’s hourly wage. This average markup rate is around 25% but can vary depending on the position type and the required level of experience. The typical range of markup rates is between 15% and 40%.
In addition to the markup, the staffing agency must also cover overhead costs and statutory expenses including:
- Payroll taxes (social security and medicare, federal and state unemployment insurance tax and other state and federal employment taxes)
- Insurance expenses (general liability and workers’ compensation insurance)
- Equipment costs (desks, chairs, computers, etc.)
- Marketing expenses (print advertising, recruiting and job posting fees)
- Other operating costs (office supplies, telephone charges, etc.)
For all of these considerations, you may charge a flat percentage rate to cover these additional expenses on top of your typical markup rate.
Markup rates are determined by the temporary employee’s gross annual salary or hourly pay rate, which can be affected by things like geographical area, industry standards, and demand for particular positions. It also reflects how much of a profit margin you require to remain competitive and profitable.
Other Staffing Business Markups To Consider
In addition to markup rates, staffing agencies must also consider other markups when establishing their pricing model. For example, flat rate fees can be applied for services such as background checks, drug tests, job postings, and recruitment activities.
Permanent placement markups are also common in the staffing industry. These are typically calculated based on a percentage of the employee’s first-year salary and can range from 15% to 30%.
Staffing companies may also charge retainer fees or contract fees when they are hired for long-term projects. These fees are typically based on the scope of work and can be as low as 5% or as high as 100%.
When staffing agencies are looking to establish a pricing model, it’s important to understand what the competition charges. This will help you to set rates that are competitive and still allow you to make a profit.
How To Calculate Your Pay and Bill Rates
To calculate your bill rate, you need to know three things:
- The employee’s pay rate
- Your markup rate
- How many hours the employee will work
- Statutory expenses such as FICA taxes, unemployment taxes, and insurance premiums
To calculate the bill rate, use the following formula:
Bill Rate = Employee’s Wage Per Hour x (1 + (Markup Rate + Statutory Expenses))
Try Our Staffing Agency Bill Rate Calculator
To make it easier to calculate your bill rates, we’ve created a staffing agency bill rate calculator. It allows you to enter the employee’s hourly wage, statutory expenses, and markup rate so you can quickly calculate the bill rate for your client.
Staffing Agency Pricing Models
Staffing agencies use a variety of pricing models to charge their clients. The most common models are the time and materials model, the flat fee model, and the hourly rate model.
Time and Materials Model
The time and materials model is the most common pricing model for staffing agencies. Under this model, staffing agencies bill their clients for the actual number of hours worked by the temporary employees, as well as the cost of any materials used.
Flat Fee Model
The flat fee model is another common pricing model for staffing agencies. Under this model, staffing agencies charge their clients a fixed price for a specific service or project.
Hourly Pay Rate Model
Under the hourly pay rate model, staffing businesses charge their clients an hourly rate for staffing services provided. This is typically used for short-term projects or when staffing agencies need to provide labor on an emergency basis.
How To Calculate the Labor Costs
To calculate the labor costs, you need to know three things:
- The employee’s hourly pay rate
- The hours the employee will work
- The cost of benefits (health insurance, dental and vision, and any other provided benefits)
Staffing agencies need to make a profit. Once you know the cost of labor, you need to markup those wages in order to turn a net profit. The markup rate is what allows staffing agencies to make a profit on their services.
Common Billing Terms
There are a few common billing terms that staffing companies use:
- Overtime: Time worked over eight hours in a day or forty hours in a week
- Doubletime: Time worked over twelve hours in a day
- Holiday pay: Pay received for working on holidays
- On-Call: Wages paid for being available to work, but not actively working
It helps to know common billing terms because they can help staffing businesses protect their bottom line. By being familiar with these terms, staffing agencies can ensure that they are charging correctly for the services they provide.
Scale for Staffing Company Growth
While it helps to have a solid understanding of staffing firm pricing before getting started, as your staffing company grows, you may need to adjust your pricing model in order to continue turning a profit. You may want to move from the time and materials model to the hourly rate model or the flat fee model. You may also need to increase your markup rates.
Having a pricing model in place is essential for staffing companies to grow. But the most important factor in scaling up is understanding your target client base and what they are willing to pay.
It will also help to have a goal in mind when developing your pricing structure – whether it’s to break even, make a profit, or increase market share.
Once you know your target market and have a goal in mind, you can develop a pricing model that will allow you to achieve those goals. This will ensure that your staffing company is on the right track for growth.
Pricing models are essential for staffing businesses, as they enable them to charge their clients correctly, make a profit, and increase market share. Understanding the components of bill rates – employee wages, markups, and statutory expenses – as well as common billing terms will help staffing businesses ensure they are charging correctly for their services. By developing a pricing model with your target market in mind and setting goals for growth, you can ensure that your staffing company is on the right track for success.