How you price your staffing agency services can make or break your business. Many staffing agencies assume what they will ultimately bill clients is simply marking up candidate pay rates to determine the final client Bill rate. But, strategic and successful pricing for staffing companies relies on far more than designating a markup percentage. Your pricing isn't just supposed to get your candidates paid — it's also supposed to get you and your employees paid and help support all of your back-office operations.
Running a successful and profitable staffing agency requires a steady understanding of what to charge customers for your services. Many new firm owners learning how to finance their business are surprised to learn that determining final client rates is a science; it's essential to go into the process knowing how to strike that balance between remaining competitive in the marketplace based on what other firms are charging and turning profit.
A Gross Profit Margin Calculator Takes The Guesswork Out of Pricing Your Staffing Services
No pressure, right? We get it. As a leading provider of payroll, human resources, and back-office support services, Headcount Management has seen firsthand how staffing agencies struggle with calculating an effective client bill rate. Some businesses want to settle on a magic markup number for every contractor they place without considering the nuance of the hire or the current state of their business. Others struggle with both under and over-pricing concerns. These companies worry that charging too little will lose money, but charging too much will lose clients.
Using an online Gross Profit Margin Calculator takes the guesswork out of calculating pricing for your services. An online Gross Profit Margin Calculator eliminates having to manually crunch the numbers or needing to develop a complex spreadsheet formula to determine how to pinpoint your staffing services competitively. A well-appointed Gross Profit Margin Calculator helps automate as much of your pricing requirements as possible, empowering you with the insight you need to make an informed and strategic final decision on how much to bill your staffing agency clients.
How to Set Up Your Gross Profit Margin Calculator
Taking a deeper dive into the specifics of the process and outlining how to use the digital calculator can help you determine desired profit margins on any specific deal and identify how much you'll need to charge customers to drive cash flow opportunities.
Building your pricing strategy will require an initial form setup that includes:
Typical Payroll Burden
Typical payroll burden is the minimal legal employer requirements, also known as statutory expenses) that you're required to cover on each placement. This percentage includes taxes, such as social security, federal unemployment, state unemployment, and Medicare. It should also consider any other employee benefits covered during the contract. To determine the payroll burden, employers must identify the specific rates for each applicable tax.
Direct Hire Fee
A typical direct hire fee is 20%; however, most staffing firms will charge clients anywhere from 15% to 25% of an employee's year 1 salary for hiring the worker as a full-time resource.
Average Number of Weeks to Get Paid
As a best practice, always round this number up to determine how long you'll go without receiving payment from the client.
How to Use The Gross Profit Margin Calculator
Once you've filled out the setup page, it will automatically populate your estimates directly into the gross profit margin calculator. You're officially ready to explore various pricing strategies to see what makes the most sense for your staffing services. All of your calculations will be based on three cost factors:
- Pay rate
- Bill rate
- Hours on contract (estimate based on length of engagement)
Once you've manually entered these three numbers, the digital spreadsheet will do the rest, carrying over data from the setup page and automatically calculating critical factors such as the number of weeks on payroll, rate markup, and gross margin percentage.
Additionally, the tool will use the logged information to determine critical operational calculations, such as:
- Weekly top-line revenue
- Weekly payroll expense
- Single temp weekly gross profit
- Single temp lifetime value
Most importantly, using a digital gross margin calculator allows your staffing agency to continually adjust any of the manually added data to maximize final revenue generation with each individual placement.
Instructional Video on How to Use the Gross Profit Margin Calculator:
Download the Gross Profit Margin Calculator for Staffing Agencies
Ready to start pricing out your temp job orders to boost cash flow and overall return on investment? Download our easy-to-use profit margin calculator today to help take control of your staffing agency's pricing strategy and remain competitive in the marketplace.
