Should staffing firms lower their mark-ups?
It’s no secret that margin pressures in staffing industry are more intense than ever. So when someone says “XYZ Staffing will do it for less,” should you lower your prices to compete?
Generally speaking, no. Lowering prices is a fools game. It kills your profits, devalues your services, and some fool will almost always undercut you.
But is lowering your price always a bad idea?
However, if you’re going to give on price, you have to get something in return. And that something has to either lower your costs or give you more total gross margin dollars from the account.
For example, in exchange for a discount you might ask for:
- First call guarantee
- Longer assignments
- Minimum volume guarantee
- Longer lead times on orders
- An opportunity to fill a wider range of positions
- Eliminating extra services like background checks (or at least billing these services separately)
- Faster feedback on candidate submittals
- An opportunity to staff for another department or facility
- An opportunity to provide direct hire services
One last word about discounts.
If you are going to lower your price, you absolutely must know your costs. For example, if you’re making a 5% net income on a $15 / hour bill rate, and you drop your mark-up from 50% to 45%, you’ve wiped out 2/3 of your profits.
The key to a discount is to look at the total gross margin produced by the sale (with and without the discount) and the risks of unexpected costs to see if the deal makes sense.
If it’s not win-win, walk away.