One of the most direct and effective tools for cutting costs in CW program management is the program’s discount strategy. But executed poorly, it can be very damaging to the capability and overall performance of a CW program. There are many more integrated moving parts to a CW program’s discount strategy then many initially plan for.
To start, consider the following inventory of the typical incentives and/or discounts seen across the marketplace today:
Conversion discount terms. Gradual reduction/elimination of fees for converting a contingent worker from temporary to permanent status after an agreed-upon timeframe.
Note: In some cases, a minimal, transaction, administration fee is charged to cover transfer expenses.
Spend volume discount. Reduction in bill rate based on a particular volume threshold(s) in spend.
Note: This works best when in conjunction with a staffing partner portfolio optimization effort, this discount can also be viewed as a named staffing partner program fee, higher consolidated volume opportunity for the partner resulting in a volume savings discount action by the buyer.
Behind the Discount
For CW program managers, a key strategic goal is to get the highest quality contingent workers while appropriately incentivizing staffing partners to keep delivering that quality and building a partnership that is integrated and rewarded with cost-saving strategies — strategically balancing cost-effectiveness and quality. A great way to accomplish this goal is to incorporate performance incentives and/or discounts into staffing partner portfolio management.
Early payment discount. Incentive for prompt, early payment of invoices.
Note: This discount might be a little disingenuous when buyer risk-shifting strategies treat staffing partners as banks with long payment policies, such as net 90 days and more. However, many will accept the discount because they need timely service payment cash flow.
Overtime/double-time discount. Discount for workers working overtime.
Note: The sourcing costs have already been paid over the standard term of the staffing engagement; hence, increased margin points are not reasonably acceptable in these extra work requirement circumstances.
Tenure discounts. Reduction in bill rates for long-term use of contingent workers.
Note: Again, at some point it is reasonable to expect that talent sourcing costs for the staffing partner have been covered (with an ROI margin) and should not continue to be included in the bill rate on long-term assignments.
Fees at risk. Dollar penalties against service-level agreement targets at risk.
Note: These are the opposite of performance incentives. Fees at risk and performance incentives are both instances where CW program managers tie monetary payment to the achievement of program goals.)
SUTA statutory thresholds. Reduction in statutory expense upon achievement of taxable wage cap (usually in the form of a rebate). There are some costs here that should not be charged after statutory max levels have been achieved; the government is not collecting any further monetary requirements when statutory max levels are met.
Note: This true-up discount is sometimes difficult to execute and some staffing partners calculate the capture over payments in statutories as a method of lowering competitive bill rates on long-term staffing engagements.
Gain share. Share of program savings paid back to vendor/staffing partners.
Note: Very difficult to execute and rarely seen executed in the marketplace.
Revenue share. Share in profit/revenue from vendor/staffing partners upon attainment of commitments.
Note: Very difficult to execute and rarely seen executed in the marketplace.
Recent Survey Perspective on Discount Option Usage
A recent SIA buyer survey provides a view of how and what discounts options are used in an average buyer’s discount strategy. The survey asked: “To what degree are the following incentives/ discounts included in contracts with staffing suppliers and MSPs?” See survey results in the following table:
Buyer Survey Question: To what degree are the following incentives/discounts included in contracts with staffing suppliers and MSPs?
Caution: Don’t Overreach
Executing a monetary incentive/discount staffing partner strategy is a key part of any CW program management and a method to obtaining annual savings and quality service goals. But one can easily overreach, especially if an integrated staffing partner portfolio management approach does not create a strategic profit value/incentive for partners and instead just crushes their profit opportunity to an unacceptable level. Verify that your proposed discount increases/strategies are attainable by having visibility into the interior of your bill rates and the overall profitability of your staffing partners. Fairly mature CW programs have this insight to leverage in today’s standard CW program management capabilities.
The Right Number
The best-performing staffing providers have choices and if they can’t make a reasonable fair profit at a specific CW program, they can move on with their quality services to another buyer willing to pay a fair, workable bill rate.
A solid guideline here is a past research perspective that indicated how many discount options a typical CW program engages. This general research finding indicates that most CW programs are executing only two to four options in their discount strategies. The ranges were as follows:
- 1.9 discount options for a CW program less than $10 million
- 3.0 discount options for a $10 million to $249 million CW program
- 4.0 discount options for a $249 million-plus CW program
The correct number of incentive/discount options is established with the integrated balance of cost-effectiveness, with measured quality service levels, and just as important, staffing partner profitability.
