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10 Cost Factors and Sneaky Tricks To Avoid In Assessing Markup and Fees

magic Trick There are 10 cost factors you should know when assessing markup and fees. Staffing firms with corporate values and an organizational culture that is defined by an ethical operation can help you learn about the sneaky tricks some firms use to extract money from their clients. Just ask.

The point of this blog is two fold:

1. Always compare apples to apples, know what goes into all fees and charges.

2. Don’t choose a staffing firm on “markup rate” alone.

Clients know it goes on in the industry and work to find the best staffing firm aligned with their own values and objectives. Other clients are handcuffed by a remote corporate purchasing or procurement group that has made a national decision based solely on cost – but make no mistake, both know what is going on.

Clients both big and small that don’t dig in and understand the details can easily get duped into thinking they are getting a better deal when they make a decision only by comparing mark-up to mark-up. Comparing one staffing firm’s mark-up to another’s requires analysis and breakdown.

Just like car dealers who don’t want to share the breakdown of the final price for a new automobile, some staffing firms misdirect the procurement process into thinking that a lower markup is the only metric to use to compare one staffing firm with another.

Markup is not the key measure of total cost when engaging a staffing firm.

There are two polarized approaches. There are firms that have all their costs rolled into their markup. Second, there are staffing firms that quote an incredible and even perhaps unprofitable mark-up, but month to month invoice for a laundry list of administration or service fees.

The question to ask is: “How does your staffing firm make money if the markup is unsustainable?”

Cost Factors and Sneaky Tricks

Most staffing firms want to be fully open and honest about their fees. If you ask, they will show you how all the cost factors go into driving a sustainable, and profitable markup for the staffing firm while providing a value-based service for the client.

What are those cost factors? Here’s a list of many – but it’s not exhaustive. There may be regional, or industry-specific or even job-specific costs your firm could add and should tell you about.

  • Workman’s compensation. If your staffing agency doesn’t ask you what your NCCI code is, are they properly factoring the lowest risk insurance rate for your firm, or charging you an higher average blanket rate?
  • Background check. Most firms use an outsourcing agent to do this consistently, and unbiased.
  • Education verification. Getting transcripts or contacting schools and universities takes effort.
  • Drug testing. These costs vary depending on the type (saliva swab or urine) location (in-house or clinic) and scope of the test (5 panel, 10 panel, or other).
  • Skills testing. Most firms offer this as a service as part of their applicant screening process. If you are paying a separate fee, it should be for tests that are fairly advanced – not basic.
  • Success potential testing. Most firms can administer their client’s specific success evaluation test. These tests are created based on client-specific factors they know increase a temporary employee’s success and for them, reduce turnover.
  • Behavioral testing. Many firms offer this as a service too, as part of their screening process. Not all clients, and all positions, require this type of testing – don’t pay for it if you don’t need it.
  • Franchise fees. Did you wonder how the local offices, onsite managers, and other local aspects of the national firm are paid for? Look for the break-out of that fee if you have a national firm.
  • Account Administration. I can’t imagine how any firm gets away with this one, but some do. It happens when procurement signs the staffing agreement, and accounts payable pays the invoices – and the two are not cross-checked.
  • Temp to perm conversion. This is a reasonable fee, and it should be time-bound. It is likely the only fee that an ethical firm should have separate outside of the blended markup fee. Staffing firms need to make a break-even amount on every temporary person placed. If the time to break even is not met, expect to pay a fee if you want to permanently hire the temporary employee they have found for you. It’s fair.

You may also hear your staffing agency use the term “blended fees.” The term is not bad, if it is explained. If they do, ask what is “blended in,” and if they are using generic (averaged) cost factors, or cost factors specific to your firm. It should be the latter. Average cost factors across all clients means you may be paying for costs due to another firm’s higher requirements of some kind in the list above.

You Get What You Pay For

On a continuum of pricing strategies, you’ll find the following categories. Look for the middle approach in a staffing firm you consider.

  • Unsustainable and Unprofitable. Agencies often come in with an undercut bid to win the business, but fail to articulate any increased value over the current agency serving the client. Lower costs sound good at first, but if they increase costs that result from reduced quality, lower production and other disruptive distractions to your business, a few points saved in markup percentage is going to be more expensive to the client company in the long run.
  • Sustainable and Profitable. Agencies here are open about their markups, and the contributing factors that go into them. They tell you what their insurer requires, they have formal processes for serving your needs, and ask you questions like “what is your NCCI code” so they can give you the best rate based on your business’ and industry’s real workers compensation costs. One can draw clear lines between the cost factors and the specific value that the staffing agency is delivering to their clients.
  • Greedy and Sneaky. Agencies in this category have exorbitant markups that are based on factors that are difficult to measure. For example: National Staffing Service Contracts rarely benefit a client in the long run, because the quality of the worker falls down when an operation is served by people hundreds of miles away. Temporary employees also don’t trust these firms, preferring to work for local staffing firms they can walk in and see. The fine print in their service agreements enable them to come back with subsequent fees that were unexpected when the decision to chose one firm over another was made.

Barton Staffing Solutions is a staffing firm focused on sustainable service levels to meet your needs. We’re ready to cut through the fog and help you understand these factors and approaches. We’re your partner to get the best service that enables both partners to be sustainable and ethically profitable. Call us today.