When it comes to setting billing rates for services, there is no one-size-fits-all formula. Different locations and industries have different expectations of healthy margins for profitability, and the personnel industry is no exception. In addition, each market sector within the personnel industry, such as light industrial, administrative, medical, or executive, has different markers on billing rates that need to be set to ensure that your staffing agency makes a profit. To help you track gross margin and profitability, here is a simplified formula that you can use to assess whether your billing rate is set at an appropriate amount.
For example, if a service costs $100, an agency would typically increase that service by 10 to 20 per cent to cover their research, organization and provider administration function. This amount is variable and the discount is offered only on the basis of the profit margin. Let's take another example so you can see how profit margin affects your gross margin. If you have a profit margin of 20%, the average margins of agencies are in the range of 11 to 20%.
Single-digit margins are a sign of problems. This means that you would need to increase your billing rate by 20 to 50% of the cost of the service. If you have difficulty determining the increase price, estimate the value you provide to the customer and you will do so easily. We always recommend that recruiters use the average multiplier as a starting point when trying to determine the customer's billing rate.
However, keep in mind that there is no standard multiplier for each contract placement. Multipliers generally range between 1.50 and 1.80 for technical and professional placements. Health care placements tend to be higher. Depending on the type of candidate needed and the location of the job, you may need to adjust your rate. The average margin of staffing agencies for temporary employees can range from 20 to 75%.
Permanent placement margins are typically 10 to 20% of the employee's annual gross salary. The standard temporary agency profit margin is 20 to 60% of the annual salary, while full-time placements are valued between 10 and 30% of the same amount. When it comes to agency margins, what's acceptable to clients and what's acceptable to the agencies themselves is rarely the same thing. A temporary agency surcharge is a percentage of the salary of an employee who receives a temporary agency for locating and transporting them to the company. The price depends on the value an agency offers to the client, but most of the time, social media agencies undervalue their services and charge a meager fee.
While e-commerce and SaaS companies generally know exactly how much they earn for each product sold, digital agencies often have to deal with unforeseen expenses and changes in customer budgets. Clients don't have to worry about agencies billing them for non-productive hours, and agency employees have no excuse to loosen and inflate working hours.