When advising contingent workforce programs and conducting research, one of the things I find most frustrating is not being able to answer the seemingly simple question: “What markup should I pay for this job function?” or “What would the correct bill rate be for this one?”
On the face of it, this seems like it would be a fairly simple benchmarking exercise. As a procurement professional who has done hundreds of sourcing events, it is an obvious starting point for any negotiations. But when it comes to services, such a response is frankly impossible to give.
Arguably, many — if not most — analytical tools available fall far short of being able to provide a real source of comparison for contingent workforce roles. (Full disclosure: Staffing Industry Analysts is collaborating with Brightfield Strategies to produce a CW benchmarking tool called TDX — Talent Data Exchange). It stands to reason that if I’m sourcing a category of labor in the same market as my competition, I should be paying the same or at least close to the same rates for the same job roles. The reason this doesn’t work is fairly obvious once you scratch the surface: Your roles and the rates SHOULD NOT be good sources of comparison because the areas of difference are greater than the job title and proximity. Here are a few points to consider:
Job taxonomy. Your job categories often have little or nothing to do with the type of role that is actually being filled. Take the job title of “project manager,” for example. In many cases, the role may have a vast spread between the high rate and low rate. This is in most cases a catch-all job description for the hiring manager who doesn’t want to craft a specification from whole cloth. At the same time, what you may call an “accountant level 2” at your company may be someone else’s “level 3.”
Assignment duration. Role tenure has a lot to do with a supplier’s pricing strategy. If your competition has a materially longer average tenure for similar roles, odds are they are paying much less as their suppliers have a longer period to recoup their recruiting expenses than your suppliers do. Also, shorter tenures are less likely to attain statutory thresholds, resulting in seemingly higher costs.
Average wage. If your suppliers enjoy a higher wage base on average across multiple categories, the markup rate will most likely be lower, because the supplier is able to leverage a greater volume.
Supplier mix. Many companies with supplier-neutral MSPs include large sub-supplier groups as they feel they can offload the complexity such a supplier strategy brings to the MSP. The thinking behind this is the larger net creates a more competitive CW program. This is counterintuitive when it comes to CW. Many suppliers reserve the true premium pricing for programs where they feel they have a legitimate shot at winning the business in whole or in part. If your competition has a smaller vendor base than you, you can usually expect a different pricing approach.
In the end, there are dozens of additional criteria that may affect CW pricing and create variability, so the best source of benchmarking information is YOUR OWN DATA. By looking to your historical pricing information in a timely context, you can identify leading indicators of program pricing sufficiently.
For example, if your requisitions often make it to the offer stage and the resource declines, you should assume the rate of pay has one thing to do with it. A second metric area to evaluate is unscheduled/early terminations. Early terminations are one of the most powerful indicators of wage insufficiency. As the rate of early and unscheduled terminations changes, it stands to reason that the rate of pay may have something to do with that as well.
In the end, these are just a few ways pricing can fluctuate even within similar job categories. But by focusing first internally to determine the optimal rate strategy, you will be best set to take your program to the next level.