How To Price For Your Staffing Agency When Expanding Into the US

According to the British Chamber of Commerce, staffing agencies are experiencing record placement difficulties. On average, 1 in 8 staffing agencies are now experiencing difficulty placing skilled talent.

Compare this to the vast American staffing market, which is set to grow by 3% in 2024 and currently sits at 202.7 billion dollars. Moreover, the US staffing agency market offers higher salaries and mark-ups, up to 75%.

Significantly, there’s less competition, too. There are 27,000 other staffing agencies in the UK, while in the US, there are only 20,000 agencies and a much higher population.

For UK staffing agencies looking to expand into the US, it can be tempting to disregard pricing and use markups that are traditionally used in UK recruitment. However, your recruitment agency should know how to markup in the US to stay competitive and profitable.

What to Consider When Calculating Pricing

In the US, the price a client pays for a staffing agency is called a “bill rate” (often called the "charge rate" in the UK). Staffing agencies must consider several components to find the right pricing: gross profit, burden rate, markup, pay rate, and net profit.

The pay rate is simple and is the worker's gross pay. The markup is also relatively simple and consists of the percentage you add to the employee's pay. For example, a 50% markup on a $50 per hour pay rate will be $25 per hour, implying a $75 per hour bill rate.

The gross profit refers to the amount of money a staffing agency makes after paying an employee's wages and burdens. In the US, the burdens are all the payroll taxes and insurance a staffing agency must pay by law. This includes social security and medicare tax ("FICA"), state unemployment contributions ("SUTA"), federal unemployment tax ("FUTA"), and workers' compensation insurance. The US and state governments mandate these contributions, and the staffing agency must pay them. A burden rate is these burdens expressed as a percentage of an employee’s gross wage. Burdens vary by state and industry and can change year to year as laws and insurance rates change. Also, it's important to remember that Independent Contractor ("IC", "Corp-to-Corp", "C2C") workers do not have burdens due from the staffing agency since these workers pay their own taxes directly.

Finally, net profit measures overall profitability; it is calculated by taking gross profit and subtracting other expenses. This is the crux of what decides whether your staffing agency survives. If a staffing agency can pay all its overheads with its gross profit, it will have a positive net profit; however, if not, it will lose money. 

How to Understand Your Profit

The best way to understand how to calculate a profitable scenario is to examine a practical example.

In simple terms, the formulas needed to calculate a profitable scenario are as follows: 

Bill Rate = Pay Rate x (1 + Mark Up) 

Burdens = Pay Rate x Burden Rate

Gross Profit = Bill Rate - Pay Rate - Burdens

Imagine you have a sales admin assistant for whom you pay $20 an hour. Let’s assume your burden rate is 15%, and you are charging a markup of 50%. Here are the numbers put into the formula: 

Bill Rate = $20 x (1 + 0.5) = $30.00

Burdens= $20 x (0.15) = $3.00

Gross Profit = $30.00 - $20.00 - $3.00 = $7 per hour

This leaves your staffing agency with $7 per hour made from this worker to pay overheads and make a net profit.

What if I change the Markup?

Markup is one of the bill rate's more flexible elements, varying from 20% to 75%, so if you’re struggling to make a profit, it may be worth considering increasing it. In US staffing, we see the average markup on W-2 employee assignments to be 50-60%. For Corp-to-Corp (C2C)/Independent Contractor assignments, the markups are closer to 30%.

Take our previous calculation. 

If we adjust the markup to 60%, the calculation will be: 

Bill Rate = $20 x (1 + 0.60) = $32

Burdens= $20 x (0.15) = $3.00

Gross Profit = $32.00 - $20.00 - $3.00 = $9 per hour

Should I keep My Bill Rate Constant? 

Due to the massive variance in regulations across the US, it’s important to adapt pricing to each location and industry you operate in. For example, your burden and overhead costs in Deleware will be lower than in California, and so will the expectation of the bill rate. Burdens for light industrial jobs will be higher than for IT jobs due to differences in workers' compensation insurance costs.

Therefore, it’s vital to adapt to the market, especially when expanding for the first time, as clients are much more sensitive to pricing changes from new agencies.

Ascen 

At Ascen, we developed an Employer of Record platform with staffing agencies in mind. Our platform lets you track pricing, invoicing, and gross profit. Ascen also has an in-built system to track hours so you can see your gross profit down to the finest detail.

Our solution can allow you to expand into the US market without registering a legal entity and dealing with the complicated regulations and overheads needed. This not only saves time but can also increase your net profit.

If you’ve already established yourself in the US, Ascen can provide the back office support you need to expand your operations without the headache of optimizing pricing for each market you enter. 

When you sign up to Ascen, you’re also given access to a pricing calculator so you can understand how much profit you stand to make in any state and job type.

To see Ascen in action, please book a demo here.