Pricing Your Staffing Services
Proper pricing is crucial for landing new business and ensuring adequate net profit in a temporary staffing business. Here’s a guide on how to set prices to achieve profitability:
Understanding Your Staffing Company's Costs
Understanding the types of costs in the temporary staffing industry is vital for setting the correct prices to maintain profitability. Here are the key cost categories you need to consider:
Direct Labor Costs
In the temporary staffing industry, direct labor costs refer to the expenses directly associated with employing and deploying temporary staff.
You need to calculate the exact costs for each job position, including wages, payroll, taxes, benefits (if applicable), and worker’s compensation insurance, to ensure you know the limits and the impact of small amounts on earnings during negotiations.
Here’s more information and a tool to calculate direct costs in the staffing industry.
Indirect Costs or Overhead
Indirect costs refer to expenses that are not directly tied to providing services to a specific client but are necessary for the overall operation of the staffing business. These costs are not directly billable to clients but must be accounted for in the overall pricing strategy.
This category includes costs such as administrative, marketing, office salaries, interest and financing fees, commissions, general insurance, and phone expenses.
We have created an article with information and a calculator for you to estimate your overhead costs.
Setting Up Prices
How to Define Your Pre-Tax Markup
Once you understand your costs, you must determine the markup needed to cover direct and indirect costs and provide a reasonable profit margin.
Markup determination is not based solely on costs. Factors such as industry standards, perceived value, seasonality, client volume, and business goals also need consideration. We will discuss these factors in more detail shortly. As a point of reference, markups for temporary staffing typically range between 20% and 35%.
Industry Standards: Understanding Market Rate
Make sure to research the current market rates for temporary staffing services in your specific industry and location. You can use this information as a starting point for setting your prices. Knowing what your competitors are charging will help you position your pricing effectively. However, be careful not to set your prices too low, as this can diminish the value of your services and reduce your profitability in the long term. While offering low prices may attract customers, it can lead to issues such as being unable to cover payroll taxes and other expenses and not making a profit.
Perceived Client Value
When setting prices, consider the value your temporary staffing services provide clients. Highlight the benefits of working with your agency, such as experience, access to qualified candidates, detailed screening/credentialing, industry niches, dependability, professionalism, and flexibility. Pricing your services based on value can justify higher rates and help differentiate you from competitors.
Seasonality and Demand
When setting prices, consider seasonal fluctuations and demand variability. During peak seasons or high-demand periods, you can command higher service rates. Conversely, you may need to adjust your pricing strategy during slower periods to remain competitive, attract new clients, or maintain revenue.
Tiered Pricing
Consider offering tiered pricing or volume packages to accommodate different client needs and budgets. This allows you to appeal to a broader range of clients while maximizing revenue opportunities.
Continuously Reviewing Your Pricing Strategy
It’s crucial to highlight the importance of regularly monitoring and adjusting your pricing strategy to guarantee profitability.
- Continuously monitor your pricing strategy and evaluate its effectiveness in achieving profitability.
- Keep track of critical metrics such as revenue, profit margins, client acquisition costs, and client satisfaction.
- Be prepared to adjust your prices based on cost changes, market conditions, or competitive pressures.
Temporary Staffing Markup Calculators
We’ve created multiple calculators for you to input your costs and/or desired markup, and then calculate your estimated profit margin, contract profitability, and minimum markup needed to cover expenses. Enjoy!