Bill Rate
Thursday, February 22, 2007
When dealing with a temp agency, the easiest way to work toward getting the best deal is to negotiate a relatively low bill rate. This is the amount that a company pays to a staffing agency for the services of a contingent worker. In order to effectively manage the bill rate, there are a number of factors to keep in mind.The largest component of any bill rate is the pay rate or direct labor rate. This is the amount of the bill rate that is being paid to the contingent worker by the staffing agency. All too often, only the staffing agency knows this rate and is very reluctant to share it with the buyer. Since the pay rate is the largest component of the bill rate, it is the critical component since the markups used by staffing agencies to determine the bill rate are applied to the pay rate. The second component of the bill rate is the markup that is generally a percentage of the pay rate through which the staffing agency recovers its costs and profits. Depending on the types of contingent workers used, level of competition, buyer’s knowledge, volumes, etc. this markup percentage will range significantly. We have experienced markups from the low 20% range upwards to 80% or more.
A common misconception about staffing agencies is that they have the same pricing for all clients. This is not true. Typically an agency will develop a bill rate structure based on a client's anticipated volume, level of knowledge relative to the applicable bill rates, level of competition, etc. Another misconception is that an agency is always paying the same amount of money for each individual in a particular skill set. Agencies are subject to supply and demand in the applicant market that may result in different pay rates for similar skill sets depending on the current market.
When negotiating a bill rate, having this knowledge can give you an edge in contract negotiation. And comparing current labor compensation on the People Ticker can give you a better idea of what the pay rate should be, helping you to negotiate lower bill rates.