Which Staffing Solution Makes the Most Cents to You?

Which Staffing Solution Makes the Most Cents to You?

by Jeanne Knutzen | January 19, 2016

0 Blog, Flexible Staffing Strategies, INFO AND RESOURCES FOR EMPLOYERS

 

Hand put coin to money

A Seattle Staffing Agency “Point of View” 

When it comes to purchasing staffing services in the Seattle marketplace (including Seattle, the Eastside, Tacoma, Everett, and all places in between) words matter.  For purchasers of staffing services, the labels used to reference different types of “staffing solutions” have come to represent very different perceptions of value and cost.    While we totally understand the need for employers to pay differently (more or less) for different levels of service, and to expect a different level or type of value from the dollars spent, we’re also maverick enough to point out that the labels that are applied to some services,  don’t always translate into differences in value actually delivered or received.    

This is true for other industries besides staffing.  For example, we are willing to pay more to eat at a Bistro than we are at a diner, and yet both restaurants can serve up the same food, or offer the same menus.   We pay more for a piece of designer apparel purchased at Nordstrom, than we do for the same garment purchased at Target, and yet both garments might have been made at the same factory, with the same design or manufacturing standards.  Call it great “marketing” or “consumer naiveté,” it’s just the way the world has been made to work as a result of skillful marketing, strategically applied.        

For all the same reasons,  the labels used to describe your staffing vendor and the employee you hire, often makes a difference in how you perceive the value delivered and received.  When the words match the reality, you will get exactly what you pay for.   On the other hand, if the words imply differences that aren’t really there, or could be purchased at different price points elsewhere, you can end up paying considerably more for the exact same product or service depending on who you are buying from, and what words they are using to describe what they are selling.   

Our goal? Help Seattle area employers get beyond the marketing hype, which is now a big deal in the product brands offered by the very large staffing industry, and get to a place where they buy and pay for what they actually need.

Here’s the deal—at its core, the business of staffing is about some third party entity (your vendor) , finding and delivering workers (temps, contractors, consultants) who perform work on your behalf, eliminating the need for you to hire the worker directly.  Successful third party employer vendors – whether you call them temporary or staffing agencies, contractors, or consultants – must be good at recruiting, evaluating and placing talent.    This bare bones description of “the service” applies just as much to a day laborer provided by ABC Staffing Agency as it does to a Business Strategist provided by XYZ Consulting.  Yes, in the consulting scenario the stakes are higher, the trappings different, but the fundamental product is the same – a third party entity puts someone to work on another’s behalf.

But while the base service is the same, the typical pricing or mark-up practices for the different types of service models/brand category can vary considerably.  Pay rates can be marked up anywhere 30-300% to arrive at bill rates, depending on the pricing practices of the particular vendor, or vendor category you are working with.  While many brands of staffing providers don’t or won’t discuss mark-up with their customers, outside of their client’s ear shot, mark-up is the vocabulary du jour of all third party people providers – temp agencies, contracting organizations, and consulting firms.

And the staffing industry has evolved to a place where it formally includes a wide range of product brands – from “temp agency” to “consulting firm.”  Each product category is marketed to the purchasing public in ways that influences buyers to expect something different, depending on the type of firm they are buying from.

  • Temporary service providers have historically provided workers who do lower level jobs, at low level costs, producing minimal value, and are referred to as “agencies.” They charge time and materials for their services.
  • Contractors and specialty contracting companies have done a great job of positioning themselves to earn premium mark ups by specializing in what is called Statement of Work (SOW) engagements that add additional levels of accountability and risk. Their contracts are supposedly focused on describing the results to be achieved, not just delivering time and material.
  • Consultants are at the highest end of the “perceived value” scale, have been successfully marketed to earn bill rates that double, if not triple the amounts allowable in the contractor marketplace. Their work is fully at the consultative or architectural level, more about providing intellectual input and direction, than achieving a specific or concrete output goal, or contributing time and material.

Today, the differences between temps, contractors, and consultants have become increasingly blurred.   

  • Temp “agencies” have moved up the value chain to provide very high level time and material IT, financial, creative and other professional staff at all levels of skills and expertise. Most will charge mark ups based on employee type…but their pricing practices start with fairly low mark ups and work upward from there, a pattern tending to keep mark ups low.
  • Professional contracting firms continue to deliver SOW work, but have added a variety of higher level time and material workers, a service model that has none of the fiduciary responsibilities of a true SOW contract model. Their mark ups, starting from a much higher place than temp agencies, are considerably higher than their “temp agency” counterparts who, in fact, can often provide the same employee, for less.
  • Consulting firms have moved out of the “thought” field into the “doing work” business, sometimes offering supplemental labor at very high mark-up rates.  You can imagine how a temporary staffing company reacts when learning that Consulting Group Y has placed Jane D with their client at a bill rate 2 to 3 times their bill rate.  Jane D, by the way, is also in their data base, as an employee ready to work, had their client even inquired before contracting with Y.

The long and short of it, purchasers of staffing solutions have many places where they can go to get the “just right staffing solution” for their business needs.  Where they go, and the words they use to describe what they want when they get there, can make a difference in how much they pay for the workers delivered.

Unfortunately, customer perception has not yet caught up with these changes in who does what in the staffing solutions marketplace.  Many purchasers of high level professional and technical staffing services enjoy well entrenched business relationships with existing suppliers, and either do not recognize the opportunities to purchase elsewhere, or just won’t take the time to find and obtain new suppliers.  We get that.  Decision makers are busy.

What we see is the high costs associated with these types of decisions, habits and assumptions.

  • When busy purchasers go to primarily SOW contracting firms to find employees that a good temporary agency could provide at half the cost, the result can be costly. Or,
  • If a frequently used consulting company is asked to provide time and material contractors (or even temps for that matter) at double the cost it would take to get the same employees elsewhere, the cost differentials even on one small project, can be sizable.

Employees, on the other hand, go where the jobs are…but what they’re called impacts what they earn, if not what they do.

We see it all the time—a highly skilled technical or professional employee can work on assignment for a temp agency at a certain pay rate, and then do a similar contract assignment for a contracting company at a different rate.

And the real catch is what happens to the client.  While pay rates for the same or similar work may vary by 25-50%, the bill rate to the customer may vary by as much as 100-300%.  In reality, the same worker is doing the same or similar work for the client – but the cost is 2-3 times more.  While the labels changed, the actual worker did not.

How do we know all this?  In the staffing solutions marketplace, PACE is not just a staffing company but we also provide “managed services”, which requires us to be smart purchasers of staffing services on our client’s behalf.  We help our clients define the work that needs to be done, and then make sure they have a staffing provider in place to do it.  As we rolled up more and more clients into getting services from our “network”, we learned very quickly how purchasing decisions get made really…and not always in our client’s best interests.  Our “managed services” program solves that issue.

If a hiring manager needs a true SOW solution because they want the work managed by others, we encourage them to pay the premium cost to use a contractor who specializes in a deliverable or results focused service.  In comparison, if they have staffing in place to supervise the outcomes themselves, and only need a time and material worker, their work is is channeled to the agency segment of the staffing marketplace where even high level workers  can be accessed  quickly and cost effectively.

Bottom line, if our client needs work done that can be done by a temp; we make sure they get a “temp” and are not charged rates or mark-ups prevalent in the SOW/contractor marketplace.  If they need a contractor, we help them avoid being charged rates and mark-ups typical of the consulting marketplace.

In the end, our mission is to help our client’s purchase the services they actually need—quickly, simply, and cost effectively – and we have designed our staffing network to provide a range of suppliers and solutions – agencies, contractors, and consultants.

 

Jeanne Knutzen

 

This article was prepared by Jeanne Knutzen, Founder and CEO of the PACE Staffing Network.  For more information on how your company can better navigate the complexities of the staffing marketplace, and/or to learn more about how to determine the type of staffing solution you need, contact us via infodesk@pacestaffing.com.  All first visits are complimentary and confidential.  


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