* STAFFING AGENCY Pricing Models - Calculating Bill Rates (2024)

“You’ve got to be kidding… you are paying ‘our’ employee $20/hr. and billing us $32 – you must be rolling in dough!” How many times have we heard a customer share this “honest perception” of our business and wished it could be true?

Yes, we’d like to set the record straight….plus arm our readers with the facts about your staffing agency invoice so that when it comes time to purchase temporary or contract staffing services, you will know how to get the most out of your staffing dollar!

The Direct Costs that Make Up Your Staffing Agency Bill Rate

To better understand how your staffing agency arrives at their bill rates, we need to start with the largest and most significant component of your staffing invoice – the costs associated with being an employer. These costs include not only the employee’s pay but also a wide range of mandated costs that all employers pay – you included. I’m talking about payroll taxes – FUTA, SUTA, Worker’s Comp, and of course the Federal FICA tax which also includes the Medicare tax – but also the costs of mandated benefits (like the new Statewide Sick and Safe benefit, the costs of ACA mandated healthcare insurance). There are also costs you require your staffing agency to incur just get their employee “fit for duty” in your work environment – the costs of conducting criminal background checks, drug tests, or other pre assignment training requirements.).

The DIRECT COSTS associated with the employer role can represent anywhere from 65-85% of a staffing agency’s bill rate, and are the same costs you would be paying if you hired the employee directly rather than asking your temporary staffing agency to employee them on your behalf. The reality is that only 20-30% of the bill rate you pay a temporary staffing service goes to the services they provide – the sourcing, recruiting, placement and employee related administrative costs. What’s left for the agency’s profits is a very different number than most customers assume and often depends on the pricing model your staffing agency uses.

To learn more about staffing agency bill rates you need to know more about the typical pricing models used by most temporary staffing companies.

The Bill Rate Based Pricing Model

Some of the mis-perceptions about agency bill rates are created by pricing models that don’t include disclosures of either employee pay or other direct costs, and focus only on the agency’s bill rate. In many areas of professional staffing, for example, it is considered impolite for customers to inquire about their contractor’s pay rate, creating the false perception that all agency pay plans, service packages, or profit targets are the same – which is never the case.

While a “bill rate” pricing model makes it easy to compare agency rates, it is a pricing model rarely used in volume purchasing scenarios where both quality and price matter. Staffing agencies using a fixed bill rate pricing model and faced with increases in their Direct Costs, will often lower employee pay rates as a way to maintain profit targets. Ultimately this practice impacts the quality of the employee they can deliver. Most bill rate based pricing models are used in “one off” purchasing scenarios where buying decisions are based more on a supplier/customer relationship NOT market competition.

The Mark Up Over Pay Rate Pricing Model

A pricing model that has better control over employee quality is a mark-up over pay rate pricing model. In this model the customer either sets or provides guidance around employee pay (ensuring employee quality), and asks their staffing agencies to quote their price in the form of a mark-up over pay rate.

This pricing practice is rich in business rationale. When both mark ups and pay rates can be normalized, an employer can directly control agency fees. For example, if an employer specifies a $20/hr. pay rate and Agency A quotes a mark-up of 40%, the bill rate is $28/hr. If Agency B quotes a 60% mark-up, the bill rate is $32/hr. Other service elements equal, a purchaser selecting Supplier A will save $4/hr. or 14%. Purchasers of high volume staffing, will set both pay and mark up rates, requiring suppliers to work within bill rate boundaries.

The mark-up over pay rate pricing model is, however, not without its challenges – largely because it creates the perception that agency services can be purchased as a commodity It is a model that clearly works against agencies who are asking for a higher markups BECAUSE they are delivering more/better service or higher quality employees than their lower mark up competitors.

And when employers “normalize” markups across multiple cities or states, quality agencies are often excluded from competing for this business given the sometimes significant differences in DIRECT COSTS depending on what city or state you are working in.

In the city of Seattle, for example, the costs of providing Seattle Sick and Safe benefits, is 3.5% of the employees pay rate, a cost not incurred in other areas of Washington. Statewide, Washington has a 1.5% revenue tax on staffing services, which is not applied to any other State in the US. These are mandated costs, creating challenges for Seattle or Washington based staffing agencies dealing with clients unaware of these additional cost mandates.

The mark up over pay rate pricing model also has issues whenever the competition for high volume business drives down mark ups while the regulatory environment drives up DIRECT COSTS. Employers anxious to get the “best deal possible” often expect their staffing agencies to eat these cost increases, impacting who is left to compete for that business. We’ve seen situations where purchasers unaware of the real DIRECT COSTS, were requiring mark ups at rates that actually fell below what we knew would cover the mandated costs, inviting a scenario where only “illegal” suppliers could afford to compete for the business.

The Mark Up Over Direct Costs Pricing Model

A more innovative approach to pricing temporary staffing agency services that we think addresses all these issues is a pricing model built around DIRECT COSTS. It is the preferred pricing model of the PACE Staffing Network, reflecting our full commitment to work with our clients in partnered fully transparent ways.

Similar to the Mark-Up over Pay Rate pricing model, DIRECT COST pricing normalizes PAY RATES but calculates BILL RATES as a mark-up over DIRECT COSTS, not pay rate. The difference between DIRECT COSTS and the BILL RATE are what we consider our SERVICE FEES, which can be negotiated with each customer based on their real needs – not prepackaged assumptions!At PACE, our customers pay for the services they need without paying for services they don’t!

By way of example, the following outlines the DIRECT COSTS associated with an employee earning $20/hr. and assigned to work in an administrative or professional role (impacting their workers comp insurance rate) in the city of Seattle, State of Washington:

Employee Pay Rate/Hr.$20.00
FICA Tax (calculated as 6.2% of all employee earnings up to $117,000 annual earnings)$1.24
Medicare Tax (calculated as 1.45% of all earnings, without cap)$0.29
SUTA (State Unemployment Tax) (calculated as 3-5% of the employee’s earnings up to $41,300 annually…depending on the employer’s experience rating)$0.80
FUTA (Federal Unemployment Tax) calculated as .6% of the employee’s earnings up to $7000$0.12
Workers Compensation Insurance (calculated as a per hour rate ranging from $.10 to $2.50/hr. depending on workplace risk)$0.12
Seattle Sick and Safe Set Aside (9 days of paid time off calculated as 3.5% of employees hourly pay rate)$0.70
B and O Tax (calculated as 1.5% of the employee’s pay and taxes)$0.35
Typical “Fit for Duty” Costs (bkgrd or drug screens)$0.08

Based on these DIRECT COSTS the bill rate is calculated as a mark-up over DIRECT COSTS. For example, if the DIRECT COSTS MARK UP is 25%, the bill rate would be $29.63, which translates into a SERVICE FEE of $5.92/hr. or $236.80/week (assuming a 40 hour week) to cover the costs of the services we provide in recruiting, screening and evaluating the candidate we deliver to this client. .

In the DIRECT COST PRICING model, when DIRECT COSTS change, bill rates are adjusted. SERVICE FEES can be lowered (or increased) based on changes in service requirements. Bill rates are fully transparent, taking all the mystery out of your staffing invoice.

If the upside of this pricing model is its transparency, the downside is the amount of information that we make transparent to purchasers. Not all purchasers are as interested in staffing math as we are. We make the case that DIRECT COST pricing practices provides the right platform for staffing agencies and their customers to have honest direct conversations about ways to hold down agency bill rates, while protecting service and employee quality. It also educates our customers on when a temporary or contract worker is the most cost effective staffing solution – and when they aren’t.

This article was written by Jeanne Knutzen, Founder and CEO of the PACE Staffing Network. If you are interested in learning more about the staffing industry’s pricing practices including the DIRECT COST PRICING model used by the PACE Staffing Network, or if you simply want to benchmark your current bill rates against what might be available to your company in a competitive staffing marketplace, Jeanne would be happy to entertain your questions or concerns in a confidential conversation. You can contact her at jeannek@pacestaffing.com or by calling the PSN info desk at 425-637-3312.

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* STAFFING AGENCY Pricing Models - Calculating Bill Rates (2024)


What is the markup rate for staffing agency? ›

The average staffing agency markup for temporary employees can range anywhere between 20 – 75%. Permanent placement markups are typically 10 – 20% of the employee's gross annual salary.

What is a bill rate in recruiting? ›

What does billing mean in recruitment? Your bill rate is how much you charge your client when you place a contract worker at their company. This is usually thought of as an hourly or a weekly rate.

What is the business model for a staffing agency? ›

A staffing agency makes money by charging the client company a fee for every employee that the staffing agency provides. In this business model, the fee is typically a percentage of the employee's wages, and it is paid by the client company regardless of whether or not the employee is hired permanently.

What is standard billing rate? ›

Bill Rate Definition: the amount a company or professional charges per hour of work. In other words, bill rate is the amount independent professionals charge clients pre-taxes, fees, and discounts. It factors into the costs you need to cover to make your target income.

What is the difference between bill rate and cost rate? ›

Pay rates and cost rates represent expenses to your business. Billable rates, on the other hand, represent potential income. These rates are all manageable. How you manage them (job costing) depends on your business plan and customers.

What is a bill rate model? ›

First is the “bill rate” or rate card approach to tracking talent costs. In this approach, the price for talent is considered the total rate the supplier is being paid for the worker's services. This rate includes the base pay rate paid to the worker plus the supplier markup on that rate.

What is an effective billing rate? ›

Effective Billing Rate = Total Revenue in a Given Period / Total Hours Worked in a Given Period.

What is a standard billing rate to salary ratio? ›

3:1 is a standard billing rate to salary ratio in consulting and other professional services firms. This standard is also known as the "rule of thirds", as the billing rate includes one-third salary, one-third overhead and one-third profit.

How do you calculate staffing model? ›

Step 1: Number of rooms multiplied by number of hours per day multiplied by number of days per week = total hours to be staffed per week. Step 2: Total hours per week multiplied by number of people per room = total working hours per week. Step 3: Total working hours/week divided by 40 hours worked/week = basic FTE.

What are the five staffing models? ›

These include planning, recruitment, selection, decision making, job offer, and retention system.

What is margin vs markup in staffing? ›

A margin, or more accurately a gross margin, is a contractor's gross profit on a job and is a percentage of the sales price. While a markup is always based on job costs, a margin is always based on sales. A 50-percent markup, like the calculation above, will not equal a 50 percent margin.

What is a good profit margin for an agency? ›

A high-performing agency would be hitting a 50-60%+ Delivery Margin on the Profit and Loss statement. The general goal we set for clients is to target anything over 50%. Once that's achieved, you're looking 'good'.

How much percentage does agency take? ›

An agency finds candidates for that vacancy. The business then pays the agency upon hiring one of their candidates. Standard recruitment costs tend to range between 15% and 20% of a candidate's first annual salary, but this can go as high as 30% for hard to fill positions.

How do you price billable hours? ›

Calculating billable hours is straightforward: you take how much you've worked and multiply it by your hourly rate. But, the complications arise when you charge different fees to different clients, or when you have a diverse team doing differently paid work, and you need to factor in all those different rates.

Why do we calculate rates? ›

You can use rate calculations to monitor your productivity or determine the cost of certain products or activities. The rate can also show the changes in a relationship between two pieces of data, such as when companies calculate a success rate for their business at the beginning of a fiscal year and the end.

What percent of your billable rate should be your salary? ›

Ratio = billable rate / hourly income. Casual research suggests that 3:1 is common (so, if you make $25/hr, you'd be billed to the client at $75/hr).

What are the payment terms for a staffing agency? ›

Typically staffing companies have payment terms with their clients that can range from 30-45 days after invoicing, with payroll funding, staffing companies can get paid on those invoices immediately.

What is a billing rate multiplier? ›

What is a Multiplier? A Multiplier is a number you multiply your employee's hourly salary by to cover expenses or profit. For example, say you have an employee who makes an hourly rate of $57 per hour. You multiply that hourly rate by some Multiplier. This new rate tells you what to bill your clients.

What costs must be considered to calculate a staff budget? ›

A company's payroll budget includes all costs directly related to individual employees, including wages, commissions, and taxes. It also includes the employer's employee benefits package costs. Before creating a payroll budget, you must know each employee's employment type (i.e., W-2 or 1099).

How do you create a staffing model plan? ›

Here are five steps for creating a staffing plan that will assist your organization to keep up with its potential and ambitions.
  1. Determine Your Goals. ...
  2. Identify the Factors Impacting Personnel Availability. ...
  3. Determine the Organization's Functional Needs. ...
  4. Conduct Gap Analysis. ...
  5. Create the Plan.
Oct 25, 2018

What are the four 4 main steps within the staffing function? ›

Staffing process consists of the following steps:
  • Manpower Planning.
  • Recruitment.
  • Selection.
  • Placement.
  • Training.
  • Development.
  • Promotion.
  • Transfer.

What are the three common staffing models? ›

Staff Augmentation Resources (temporary staff to supplement full-time internal employees) Professional Services (consultants) Outsourcing (third-party staff performing the work indefinitely)

What are the 3 types of staffing? ›

Now, There are different types of Staffing :
  • Direct Hire Staffing/ Permanent Hiring Staffing.
  • Temp to Hire Staffing.
  • Payroll Services.
Jun 7, 2019

What are the 7 staffing process? ›

The staffing function includes recruitment, selection, training, development, transfer, promotion and compensation of personnel.

What are the four types of staffing? ›

This sample International Recruitment Policy template describes the four global staffing approaches: ethnocentric, polycentric geocentric, regiocentric, and it will help you set up your own international staffing strategy.

What is a staffing matrix? ›

The Staffing Matrix is a tool to help leadership determine what levels of each staff group are needed based on the census. This matrix is used as a guideline, Adjustments are made that take into consideration patient needs and acuity.

What are the two 2 main components of staffing? ›

BusinessManagement3. Activity 2 bi o Expound the two main components of staffing - recruitment and selection, in a matrix.

What is all in bill rate? ›

In general finance terminology, an all-in rate is the rate that a financial institution uses in charging customers for accepting bankers' acceptances, consisting of the bankers' acceptance rate (here considered as actually an amount of money, not an amount of money per unit of time, although it may happen to coincide ...

What is a good fill rate in recruiting? ›

However, an average interview-to-hire ratio is 4:8:1; a good ratio is 3:1. Interview to hire ratios are excellent measures of how well recruiting is sourcing and screening candidates. Make sure your organization has a strong interview to hire ratio to ensure overall hiring efficiency.

What is a good response rate for recruiting? ›

According to Senior Recruiter Ariana Moon at Greenhouse, an ideal average response rate falls somewhere between 30% and 50%.

How do you calculate fill rate? ›

How do you calculate fill rate? You can calculate fill rate by dividing the number of orders that were shipped by the total number of orders placed and multiplying the sum by 100.

How many hires should a recruiter make per month? ›

On average, recruiter should be able to fill/hire around four positions per month with an average level of difficulty, or around 50 per year. An exceptional recruiter, or one working on mostly entry level positions, should be able to fill 60-80 per year.

How many calls does a good recruiter make a day? ›

There is no simple answer to this question because it varies by niche and the experience of the recruiter. However, the range of 40-75 calls per day will apply to most recruiters. A seasoned recruiter may only need to make 40 calls per day because their calls are returned and they have deep client relationships.

Is a 20% response rate good? ›

So, what is a good survey response rate? Factors that impact this include, how engaged your customers are with your brand, and whether you're delivering surveys in a way that's easy for them. Nevertheless, a good survey response rate ranges between 5% and 30%. An excellent response rate is 50% or higher.

How do recruiters negotiate hourly rate? ›

4 Expert Tips for Negotiating Your Salary
  1. Ask for the Salary Range. The very first question candidates should ask recruiters should be about salary range, according to Brown. ...
  2. Bring Up Salary Expectations Right Away. ...
  3. Negotiation Doesn't Stop After the Initial Conversation. ...
  4. Practice So You Feel Empowered.
Mar 4, 2022

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