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Home » Pricing Staffing Services: The Model for Startups

Pricing Staffing Services: The Model for Startups

Phil Cohen

If you’re starting a staffing company, one of the most important steps in the process is determining how you will be pricing staffing services to your clients. This is crucial because you have the opportunity to be profitable, but you need to have a solid pricing model to truly succeed in the industry. Your business needs to generate enough money to continue growing, but you can’t price your services much higher than the competition’s average staffing pricing in order to get clients.

You started a staffing company to be a successful entrepreneur, take the time to refine your staffing pricing model to excel as a business owner. Here are some general points to keep in mind when you’re pricing your staffing agency services that will help you set your finances for your new business.

Determining the Pricing for Staffing Agency Services

Know the Competition

No matter what industry you’re in, knowing who your competitors are is important for pricing strategies. Do some simple internet searches to figure out who your competitors are and what they offer. You’ll want to know who your competition is based on:

  • Location
  • Size
  • Types of clients

If you have a fair amount of competition based on those three things, you’ll have to price accordingly. You’ll typically markup your staffing services anywhere between 15 to 60 percent, but if you have a large number of competitors, you might not be able to have a markup in between 40 and 60 percent. This is because if potential clients have the opportunity to pay less for the same services, in a similar location for a cheaper price, why would they choose your staffing agency to work with.

Potential and Current Client Relationships

Developing relationships with potential clients and maintaining relationships with current clients will actually pay a large part of pricing staffing services for your agency. You might want to cater your pricing strategy for your repeat clients to be a slightly lower markup because you want to make it easy for them to continue using your staffing firm. For example, if your normal markup for a particular type of client and service is 12 percent, you might want to make it 8 percent for repeat clients of high importance.

Since staffing agencies perform a service, keeping customers happy is crucial for long-term success. It’s not a one-time transaction like business-to-consumer companies. By lowering the mark up for some clients, you’ll be able to keep the high-volume with just a slight price adjustment. Especially if you’re a startup staffing agency, ensuring client satisfaction can help you get the traction you need to continue growing.

Industry

The fee structure of your staffing companies services will depend on the type of market you’re looking to serve. If you are providing IT workers through your agency, your markup might be higher than if you were working to fill clerical or administrative positions.

Startup Costs for Staffing Agencies

Starting a staffing agency involves various startup costs that can be classified into two main categories: establishment costs and operational costs.

Establishment Costs

Firstly, establishment costs encompass the essential expenses required to set up the basic structure of the business. These costs are typically one-time payments that must be settled before taking on the first client. They include the following:

  • Legal setup expenses: This involves the formation of the agency as a legal entity and the necessary contracts and agreements.
  • Technology infrastructure: Acquiring computers and other necessary hardware to facilitate the operation and management of the agency.
  • Software: Investing in various software solutions is crucial for effective management of HR processes, accounting, payroll, testing, and staff training.
  • Office space (optional): Depending on the agency’s needs and scale, setting up a physical office may be necessary. This cost includes rent, utilities, and office furniture.
  • Insurance: Adequate insurance coverage is essential to protect the agency against potential risks and liabilities.

Operational Costs

Moving on to operational costs, these are the ongoing expenses incurred to procure employees, attract clients, and deliver services during the early stages of the agency. The level of startup costs in this category typically varies depending on the complexity and skill level of job assignments. Some factors contributing to these costs include:

  • Recruitment expenses: The costs involved in finding and hiring suitable candidates for job assignments, including advertising, screening, and interviewing.
  • Client acquisition costs: The resources invested in marketing and business development efforts to attract potential clients and establish lucrative partnerships.
  • Service delivery expenses: Covering the initial months of providing services to clients, including employee wages, benefits, training, and any additional costs associated with job assignments.

Higher-skill level job assignments generally entail higher startup costs due to factors such as higher salary demands, more complex testing requirements, and the need to maintain a polished and reputable image in the market.

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Handling the Initial Cash Crunch

To handle the initial cash crunch, a staffing agency can implement several strategies:

  • Understand and Monitor Cash Flow: It is crucial for a staffing agency to have a clear understanding of their company’s cash flow. By tracking and monitoring their cash inflows and outflows, they can identify potential cash crunch periods and take proactive measures to address them.
  • Build an Emergency Fund: Before starting the staffing agency, it is advisable to establish an adequate emergency fund. This fund will act as a safety net during challenging times and provide the necessary cushion to handle unexpected cash flow disruptions.
  • Explore Payroll Financing: In situations where accessing a reliable cash cushion may be challenging, staffing agencies can consider utilizing payroll financing services. Payroll financing, also known as factoring, involves obtaining funds in advance based on outstanding invoices. This allows agencies to gain immediate access to a portion of the funds they are owed, enabling them to meet payroll expenses, manage business growth, and prevent cash crunches.
  • Seek Alternative Financing Options: In addition to payroll financing, staffing agencies can explore other alternative financing options to alleviate the initial cash crunch. This could include securing a business line of credit, obtaining a small business loan, or seeking investment from external sources. These options provide additional working capital that can be used to cover essential expenses during the initial growth phase.
  • Implement Efficient Cash Management Practices: To mitigate the impact of cash crunches, staffing agencies should prioritize effective cash management. This involves closely monitoring and controlling expenses, negotiating favorable payment terms with vendors, and optimizing invoicing and collections processes to ensure prompt payment from clients. By efficiently managing their cash flow, agencies can better navigate the initial cash crunch period.

most popular startups

Staffing Agency Pricing Terms to Know

  • Pay rate: The amount of money your staffing agency will pay the worker. This is the largest aspect of the bill rate.
  • Markup: The percentage on top of the pay rate that is used by your staffing agency to cover employment taxes, worker’s compensation and insurance and your overall profit.
  • Bill rate: The sum of the pay rate and the markup. This is the total amount a client will pay your staffing firm for the service provided.

Your competition’s pricing, your client relationships and industry are all important aspects of pricing your staffing services, but the type of placement you provide changes the pricing as well.

1. Temporary Placement

If your staffing agency does temporary placement, you’re going to price your services just as the terms above are defined. For example, you pay a temporary administrative assistant $30 an hour and your markup is 60 percent, 30 plus 18 is 48. Your total billing rate would be $48 (per hour typically).

2. Temp-to-Perm Placement

Staffing agencies price temp-to-perm placement similarly to temporary placement, but sometimes there’s an additional fee. This fee is added because once the individual is a permanent employee, your staffing agency won’t be making any money off of their placement anymore. This fee can be established from the salary amount that the permanent employee would make.

For example, if the administrative assistant from the example above was then hired as a permanent employee by your client with an annual base salary of $40,000, you could charge 5 percent of that as the added fee. This would be $2,000 once the individual is permanently hired by your client. However, not all staffing agencies apply this fee, so you’ll have to decide if you want to be charging your clients the fee.

3. Permanent Placement

The fee for permanent placement is going to be much higher than temp-to-perm placement for your staffing agency because you won’t make additional money from your hard work spent recruiting and possibly training someone. This fee is typically around 20percent for permanent placement staffing services, so if you placed the administrative employee permanently, the fee would be $8,000.

Before you decide how exactly you will price you staffing agency services, you need to make sure that your business generates enough of a profit to meet payroll. This can be a challenge that startup staffing companies experience because many customers have long payment terms.

Payroll funding for staffing agencies is a great way to bridge the gap between slow paying customers and pay periods. Especially if you’re experiencing a period of rapid growth, you want to continue taking new opportunities and payroll staffing factoring makes this possible.

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Not familiar with what a factoring company does? Factor Finders has the answers you are looking for. Just give us a call. We have factoring specialists on the line waiting to speak with you.

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Phil Cohen

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