7.5 Staffing Secrets To Increase Profitability When Placing Temporary Employees www.bwsi.com
7.5 Staffing Secrets To Increase Profitability When Placing Temporary Employees Every staffing agency is in business to make money, but understanding all the complex factors that play into profitability starts with collecting and analyzing the right data. Consider a Midwestern staffing agency that was very close to going out of business. The agency struggled with low profit margins; even though sales were increasing, profits were falling. It turned out that the business was rife with bad data. It operated in a state with an exceptionally complicated tax structure based on a large number of local tax jurisdictions with constantly changing rates and limits. But this data never got entered in its staffing software. When it ran reports, the business appeared to achieve a healthy gross profit, but in reality it was dangerously close to being unprofitable. There are so many moving parts at play in the temporary staffing industry that it becomes easy to overlook areas where money is being lost or where more stands to be made. To be profitable, you need to have a thorough understanding of not just your business, but also taxes, regulations, your competition, the various industries you serve and the present state of the marketplace. Use these staffing secrets to increase the profitability of your temporary staffing enterprise. Copyright 2014 BWSI All Rights Reserved. www.bwsi.com 2
1) Understand all your costs Every staffing agency doing business in the U.S. is impacted by the Federal Insurance Contributions Act (FICA), which funds Social Security and Medicare. Costs associated with the Federal Unemployment Tax Act (FUTA) and its state counterpart, SUTA, must also be allocated. Some of these costs recur indefinitely, while others have limits. You must understand all the nuances associated with these variable costs and they must be well-documented in your staffing software system. It s impossible to control your profitability if you don t accurately account for everything that affects it. Another cost you must understand is workers compensation. It s not a high-dollar concern when you re dealing with clerical staffing. But in industries where there are real hazards, workers comp becomes a bigger expense. Light industrial workers, for instance, face many occupational hazards, so workers comp payments in this field are higher than they are for desk jobs. It s especially important to be careful when working within different taxing jurisdictions. Expanding to new states comes with many new rules and regulations to which you must adhere. For instance, if you ve been doing business in Kentucky and decide to expand into Ohio, you are going to have new costs. Staffing agencies expanding into new states often forget to input the new changes into their staffing software. If you don t provide your software with accurate information, you won t receive accurate data in return. This is probably the biggest mistake staffing enterprises make when it comes to understanding their costs. Another common mistake often comes when you re dealing with a large customer that makes additional requirements such as background checks, drug tests and providing uniforms, etc., part of the business deal. The mistake isn t agreeing to provide these tests or extra supplies; it s forgetting to enter these costs into your system. Copyright 2014 BWSI All Rights Reserved. www.bwsi.com 3
If you re not accounting for all the costs of doing business, how do you know if you re truly profitable? Having to pay for employee drug tests for a large client is certainly going to affect your bottom line. If you haven t put these costs into your staffing system (or if your staffing software isn t sophisticated enough to handle and apply these costs to each job), you re not getting a clear picture of profitability. 2) Understand the markets you re serving Clearly, negotiating better rates improves profitability. But before you re able to do that, you must first understand your market. You can t just charge whatever you want for your services; you have to understand how your costs compare with your competitors costs and what your customers are willing to pay. This takes research and a keen understanding of your competitors. To negotiate better rates, you need to know what an acceptable rate for staffing services is in your market. Use your customers to help you with this research by providing details about the quotes they re receiving from your competitors and what they re willing to pay for staffing services. You want to make sure that you re appropriately pricing your staffing services. Moreover, it s important to understand the market at each level of skill you re providing. You want to make working with you attractive to contingent workers, but you don t want to make unnecessary sacrifices on your profitability. Understanding your market allows you to accurately and competitively price your services. Also, if your staffing agency operates in different regions, it s critical that you understand the cost of doing business everywhere you provide services. The skillsets and volume of a workforce are going to vary. Don t look at all markets with the same lens. Operating in Dallas is likely a lot different than operating in Detroit, for instance. Copyright 2014 BWSI All Rights Reserved. www.bwsi.com 4
3) Provide added value Increase profitability by providing customers with more than they expect. This doesn t mean supplying an IT firm with a dozen computer networking experts and throwing in a free pizza for each of them. It means knowing your customers well enough that you re able to understand their needs even better than they do. Go above and beyond what they re asking for. If a customer calls looking for an accounting clerk, but you know that client also needs an executive secretary, you may be able to offer them someone who is suited for both jobs. This isn t just an opportunity to satisfy your customers; it s an opportunity to charge more and maximize profitability as well. 4) Get a multidimensional view into your profitability You need a system and a method that allows you to look at your profitability from multiple angles. Looking at profitability broken down by job type and customer, for instance, helps you see more clearly where you re making money and where you re not. If you re staffing for light industrial, health care and clerical work, you should be able to view the true profitability of each group individually. For example, if you have a staffing company that fields jobs for carpentry work, online electrical assembly and forklift operations, you ll want to know the market pressure, pay rates and skills needed to complete each job, and have it all logged into your system. This way you re able to analyze profitability based on each job group and decide where to focus your attention. You should know what workers comp, FICA, FUTA and SUTA is costing you not only per client, but also per employee. Know which of your contingent workers carry the most costs. The right staffing software provides this information for you. A multidimensional view into profit also helps you pinpoint which customers cost Copyright 2014 BWSI All Rights Reserved. www.bwsi.com 5
you the most. Every employee background check and drug test a client requires costs money. If you don t keep track of those costs, you won t know your true profitability. Knowing your profit-makers internally is beneficial as well. Ask yourself: How diligent are you in controlling costs internally? When you know which sales reps bring in the most revenue, or which recruiters find the most cost-effective resources, you re empowered to refine your methods and get more out of everyone. Your staffing system should be able to process all this information in a variety of ways to help you see the details. If you only look at your company as a whole, you ll be like that Midwestern staffing agency: unable to see the complete picture of your profitability. 5) Reduce downtime between jobs How many of your employees are working steadily compared to those who have gaps between jobs? This is a big profitability indicator. When contingent workers aren t offered consistent work, they seek opportunities elsewhere. Putting a new hire through onboarding, orientation and training costs you money. So what s the key to retaining your workers? Limit their downtime. Analyze your employee downtime to better plan for employee placements. You should know what types of jobs your workers are most qualified to fill. Target those accounts to ensure you consistently have work opportunities available. Also consider providing benefits and recognition to your long-term employees to better retain them. An added bonus to having employees on your books long term is that they are more likely to exceed the federal and state limits for unemployment payments you make on their behalf. Once an employee hits their unemployment tax cap, the revenue they create for you goes up. In this regard, keeping employees engaged in regular work increases your profitability. Copyright 2014 BWSI All Rights Reserved. www.bwsi.com 6
6) Balance new assignments to fill rate To stay profitable, it s essential that you strike the right balance with the work available and the work you take on. This requires thoughtful planning on your part. You want to keep your pipeline reasonably filled, but you must also be able to find people to fill the jobs you accept. You look bad if you take a job to place 100 workers but only fill 20 positions. Furthermore, what happens to those other 80 spots that need to be filled? That client must turn to another agency to fill the positions. In the future when this work is needed again, that client won t come back to you if you didn t deliver the first time around. Balance your sales with your ability to fill the jobs. Avoid the temptation to take on large accounts that you can t handle. The target fill rates for staffing firms vary per industry. Many people are unemployed because they lack the skills necessary for the jobs available. It s especially challenging to find skilled workers for the IT, legal and medical services industries. In these fields, a fill rate of 70 percent is generally considered good, although it differs depending on the region you re operating in. In light industrial, however, you should aim to fill close to 100 percent of jobs, as these jobs are easier to fill and the immediate demand to fill them is high. Copyright 2014 BWSI All Rights Reserved. www.bwsi.com 7
7) Predict profitability before it happens A good staffing system allows you to look at all of your job assignments and predict profitability. For example, you should be able to see the work schedule of a group of 300 workers for the next three months. If everybody works the hours scheduled for that job, a good staffing software system will provide a gross profit analysis for the future. If your staffing system has accurate information on who is assigned to work what job (and they work the hours assigned), you ll have the power run a report that outlines future profitability. Use your historical staffing data to your advantage when predicting profits. You should know which jobs are historically the most profitable and use that as a basis to take on new work. Use your staffing data to spot trends. If you run a profitability report and see that in three months time you re not going to be making as much as predicted, analyze your data to determine why. Perhaps you have more jobs ending at one time than usual or a similar anomaly. You should also have the ability to predict profitability on a job-by-job basis. There s no need to realize eight weeks into a job that you re losing money. This is something you need to know before starting a job. Every time you take on a new job, map out what you have to pay in FICA, FUTA, SUTA and workers comp so that you know what you re actually going to make after labor has been paid. If your gross profit isn t where you want it to be, you might want to redefine your business plan to go after more profitable jobs (and if you ve done the steps outlined previously, you should be able to pinpoint those jobs). 7.5) Understand your fixed costs One final thing to note in this discussion about profitability is the difference between gross profit and net profit. Your net profit is what you ultimately take to the bank. Net profit is affected by fixed costs. The lower your fixed costs, the greater your net profits. Rent, administrative costs, lawyers, accounting, salaries, taxes and insurance for your internal employees any cost that s not tied to sales those are your fixed costs. Copyright 2014 BWSI All Rights Reserved. www.bwsi.com 8
It s very helpful to know in advance the level of fixed costs you re able to bear and still remain profitable. Many companies don t focus on this as much as they should. Just because your staffing agency is making a lot of money at the gross profit level doesn t mean that it s enough revenue to support your infrastructure. Staying ahead of that is important. If your margins are below 20 percent after you ve added in your fixed costs, it may be time to reevaluate your internal expenses. As you see, there are a plethora of factors large and minute that affect profitability. Once you understand everything that affects your staffing agency s profitability, the best way to take control is to have sophisticated staffing software in place. With the right staffing system, you see what you re making not just overall, but per job, per type of job and per employee in every region you operate in. Having accurate information on the cost of doing business is paramount to your ultimate profitability. That struggling Midwestern staffing agency mentioned earlier was able to get its data sorted out and started making a profit again in a matter of months. Remember, you can t make good business decisions based on bad data. The right software equips you for a profitable future. BWSI (BusinessWare Services Inc.) is a global staffing data integration and back office outsourcing provider based in Phoenix. During our three decades in business, we ve developed and refined industry-leading temporary staffing software and online recruitment software. Superior customer service has always been the cornerstone of BWSI s business methodology. Our products and outsourcing services empower our staffing industry clients with the tools they need to provide that same superior level of customer service to their own clients. Copyright 2014 BWSI All Rights Reserved. www.bwsi.com 9