Tip of the Month: Understand Your Billing Rate

The computation of the hourly billing rate that Staffing Services charge can sometimes be misleading.  Consider these examples:


Example 1: 

• Pay rate = $10.00/hour
• Staffing service quotes a 50% markup of the pay rate
• Final bill rate is $15.00/hour (10x 1.5) simple enough right?

 Example 2:

• Pay rate = $10.00/hour
• Staffing service quotes a 33 1/3% markup
• Final bill rate is $15.00/hour
  

How can 50% and 33 1/3% produce the exact same bill rate you ask?  Semantics. . . . or as we use to say in the 60's, Tom Foolery!

The first example utilizes a pure mark up formula.  The second utilizes a retail marketing gimmick to make themselves look cheaper. 

Instead of marking up the pay rate by 33 1/3% (which would yield a $13.33/hr bill rate) they take the difference between the bill rate ($15.00) and the pay rate ($10.00) in this case $5.00/hour and divide that in to the bill rate ($5.00 / $15.00) to get the 33 1/3% markup.

Example 3:

• Pay rate = $10.00/hour
• Staffing service quotes a markup of 20% plus burden costs
• Final bill rate = $16.00/hour
  

How can this be you ask? 
The key word here is burden. Burden is staffing service lingo for payroll tax costs.

So in this case the staffing service is trying to sell you that their payroll tax cost is 40% or $4.00/hour.  This is highly unlikely.  It really means more in their pocket.


What does this all mean? You request quotes from three staffing companies and the response if
20%, 33 1/3% and 50%.  A no-brainer right?

Now what's the tip?
 
Simple, when you send out for bids from staffing services request specific pay rates along with the  corresponding hourly bill rates.  Don't solely base your pricing decision on a "mark-up" number because as you can see they are computed differently.  You want to compare apples with apples.


And for the record, Ryan Staffing uses the first example.  We are a no tricks or gimmicks supplier.