What’s in a Markup?

Have you ever taken a percentage to the bank?  Have you ever cashed a check payable in percentage?
Like many businesses, the staffing industry has various ways to price our services. Markup is a common term that usually refers to a fee that is a percentage of the employee’s wage that’s added to that wage.  Included in the fee are all the mandatory payroll taxes and costs of an employee.  Agencies are no different than other employers:  we have the same payroll costs as anyone else.  In addition to the alphabet soup of costs:  FUTA, SUTA, FICA etc., there’s the real bugbear, Worker’s Compensation Insurance.  After all these are paid, there remains the extra pennies that you pay the agency for their service.
Worker’s Comp costs can range anywhere from 2% of the hourly wage to 100% for the riskiest jobs.  While FUTA, SUTA and FICA are reasonably predictable, WC varies for each job, each agency and each client.  The safety records of both client and agency figure heavily in the premium.
Today’s competitive market for jobs puts lots pressure on agencies to lower their markup.  All things being equal the pressure on markup is really pressure on profit.  Since we all need to profit in our businesses, that pressure can translate to some pretty creative tactics that often wind up being an exercise in deception.
Consider a $10/hr. employee.  An agency might want to get a 70% markup and prices him at $17/hr.  The client balks and demands a 50% markup.  So, the $10/hr. employee will now be billed to the client at $15.  However, there is nothing to stop the agency from finding someone to work for $8.82/hr. with strict instructions not to reveal his pay to the client.  The client congratulates himself on his tough negotiating, the agency laughs at their cleverness and the employee pays the price.
On the other hand, what if the client simply said, “I can afford $15/hr. to perform this task?”  If the work gets done to the client’s satisfaction, does it matter if the agency paid the employee $8.00, $8.82 or $10?  Maybe the agency will start someone at a lower pay rate with the understanding that if the client is satisfied he or she will get a raise.
Confining the agency by dictating a markup can be a disincentive for both the agency and the employee, whereas specifying a Bill Rate may gives the agency a reason to look for someone willing to work for a lower initial pay.
In the end, is the fuss over markup really worth the effort?
The staffing business is peculiar in that companies historically have tended to quote their profit as if it’s their price.  We certainly don’t ask Safeway what their markup is on the items on their shelves.  Yet somehow in staffing it’s important.  In the end it can become a shell game that can wind up doing more harm than good.
If the can of beans or bar of soap at Safeway is competitively priced, who cares what their profit is?  As with any purchase, the marketplace is the consumer’s best defense.  If someone is overcharging in a competitive market they won’t be doing it long.
While we can quote markup, in the end the only thing that matters to any of us is the dollars and cents of the Bill Rate.  As with any other transaction, a company’s profit is relevant only if it drives the price out of line in either direction.   That’s why we’d rather talk about Bill Rate.
All else being equal, in our business the difference between companies is service.  How well do they screen candidates?  Are their sales people willing to meet and spend the time with you to really understand your business and your individual needs?  How do they react when things go wrong?  Are they easy to reach and responsive, or do you talk to a call center in a faraway land?
No matter how easy it is to get responses to ads, there is still an art to finding the right match for your job opening.  The fact that hundreds of people might be interested in your job doesn’t change the risks you assume when you bring new employees on board.  The wrong decision is infinitely more costly than the few pennies you pay an agency to find the right match for you.
Remember until you’re happy and sure you have a winner, the agency is on the hook for the costs of a bad decision.  Whether they take the hit with increased Worker’s Comp rates or unemployment insurance, the agency runs interference for you until you’re ready to bring them on board.
Give us a call today and let us quote you a Bill Rate to get the job done!

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