Want to know a term that makes the staffing/consulting industry cringe? MARKUP.
Managers that use contract/contingent labor from a consulting/staffing firm: when is the last time you spoke with your preferred firm about their markup on resources that they “provide” you? Have you ever asked them what their markup is on top of what they are paying the contractor? You should, and here is why.
Staffing/consulting firms typically markup resources they provide to clients 80-300%. That’s right,75-300%.Most of the large, publicly traded firms have an absolute minimum markup of 75% on non-salaried, contract labor, and a 200% markup on “bench”, salaried resources, and some go as high as 300% for “niche” skills.
Why?Because they don’t answer to you, the client. They answer to a board of directors or Wall Street. Your opinion as the client doesn’t matter in this equation. IT SHOULD.
Have you ever done the math on how many more senior level resources you could bring in on your project if your staffing provider’s markup wasn’t ridiculously excessive? Let’s take a look at a brief example.
Our sample client manager hires five senior level resources from Firm “A” at $150hr all-inclusive of expenses (i.e. no further added costs). The project is for 12 months, so roughly 2000 hours of billable work per consultant. So that is $300,000 per consultant times five consultants: $1,500,000. The consulting firm’s markup/margin on these five resources is 100%, i.e. they are paying the consultant $75hr as a W2/1099/C2C “employee”, and then selling the resource to the client manager at $150hr. So why should it matter to the client how much profit the consulting firm is making off of the deal?Should the client manager have an opinion on the profit level of the firm as long as they are happy with the resources? Yes, they should.
It should matter to the client because that extra margin could be going towards more senior level contingent resources to provide extra horsepower for the project, to hire and train extra permanent employees, or simply save the budget for future projects.
Let’s say that instead of using Firm “A”, the client manager hires the same resources from Firm “B” at $105hr all-inclusive of expenses (i.e. no further added costs). The project is still for 12 months, so roughly 2000 hours of billable work per consultant. So that is $210,000 per consultant times five consultants: $1,050,000. The consulting firm’s markup/margin on these five resources is 40%, i.e. they are paying the consultant $75hr as a W2/1099/C2C “employee”, and then selling the resource to the client manager at $105hr. The client saves $450,000 by using Firm “B” over Firm “A”.Firm "B"still provides all of the same customer service, on-time payments to consultants and billing to the client, and has all of the necessary insurance in place.
What could your project team/IT Department do with an extra $450,000 for a project?
-Hire two more contingent resources for the project from Firm “B” for the entire year, with $30,000 in surplus.
-Hire three senior level, permanent resources at $110,000 per year salary with full benefits.
How much easier would your life as the hiring manager be if you could bring in this much extra horsepower to complete your project?Why would you use Firm "A"? I mean sure, they might bring you some nifty little candy bags by your office on holidays, and might even take you out to lunch occasionally at a generic chain restaurant. Is that worth 450k?
If you haven’t asked your current staffing provider what their markups and margins are, you should.It is your “business” in knowing this, and if they are truly your staffing “partner” they should tell you. If they have to call their director/VP to get approval on disclosing markup, fine. But you have the right to know.If your current staffing provider refuses to share this information, this should be a HUGE red flag. Why? What do they not want you to know?
It will be an awkward conversation, have no doubts about that. Feelings might get hurt. But this is business, and it is a full contact sport.
If you would like to speak with a staffing/consulting firm that will have the markup conversation and will work for YOU THE CLIENT and not a board of directors or shareholders, give us a call.
We are South 6: our family of companies have been in the staffing business since 1998 and we currently have over 900 resources on assignment with clients. We aren't afraid to discuss markup on our resources(or anything else for that matter), and we work for you the client, not shareholders.
