How Much Profit Does a Staffing Company Make Off of Contracts?
Staffing agencies serve a unique role in the marketplace by providing temporary employees on short notice. The staffing agency acts as the employer, and essentially leases out staff, as needed. This allows the agency to hire on-call help in broad range of fields. Common staffing roles include labor and office assistants, but specialty agencies do exist to support specific, highly qualified job roles. Staffing agencies have different pricing model options, and markup on time varies by job role. The more qualified a job candidate, the more a staffing company can charge.
The common profit model used by staffing agencies a markup on hourly rates. As an example, the agency will pay a laborer $12 dollars per hour, but will charge the business $17 dollars per hour. The $5 dollar per hour difference goes to the staffing. Consulting firms also use this model for billing clients against hours worked by their employees. Although the difference between the employee pay and the billed rate goes to the staffing company, the money is not 100-percent profit. Staffing companies must factor in the overhead into their pay structure to ensure profitability in their contracts.
Profit is calculated against each individual employee. The formula is fairly simple and consistent when the overhead structure does not fluctuate. Maximizing profit is dependent on the staffing agencies' contract with the end employer. There is no industry standard and the rates change according to demand.
The billing rate is the amount charged to the end client. A staffing company can set this rate first or work backwards, starting with overhead, and the employee pay to determine where the billing rate should sit to make a profit.
This rate is paid directly to the employee. Typically, it is an hourly rate; however, long-term contracts can work on a set salary. The salary markup is calculated monthly, but it works in the same equation.
Take the number in Step 1 and subtract the number in Step 2. Multiply this number by the total numbers of hours worked. Some contracts are flexible, and others have a set budget and cap on hours.
Now that you have a total gross profit figure, subtract the overhead and burden costs per employee. Deduct taxes, benefits if any are offered and the average cost per employee for support staff, client acquisition and marketing. After the overhead costs are subtracted, the final amount reveals the net profit.