Throughout history, people have made many predictions about the future, some successfully and others less so. Let’s face it, none of us today knows what our houses and cars will be worth in six months’ time, let alone in two years. Even day-to-day trading online is replete with bids being accepted by the seller below the posted price, all because the buyer (at the end of the day), must accept the market rate if they want to sell. This is how the world’s stock markets work. The market rate is whatever the market rate is.
During my years on the supplier side of the workforce solutions ecosystem, I was involved in numerous bid opportunities where enterprise organizations asked for forecasts and commitments to bill/pay rates for up to two years. Often, these requests were structured to allow inputs for low, medium and high ranges; I recall one that required around 1,500 rates to be inserted. But even with comprehensive job descriptions and geographical locations, projected rates are usually an aggregation of educated input from across the business. In other words, they are an educated guess.
When suppliers win bids on this basis and the market rate increases above that projected level, the buying organization is left with two choices:
- Accept that the market has changed and that additional fees need to be paid, or
- Go through another RFP and look to change suppliers
I have only ever seen the buyer take option one, which is not fair to those organizations that more accurately predicted future inflated pay rates in the RFP process and were therefore deemed “more expensive,” thus losing out on the bid.
One of my lasting memories from when I studied economics was the demand/supply curve, which shows how these two factors influence the market price of goods and services.
If you are a supplier, then you want to be able to provide higher quantity of your product or service as the price increases. Conversely, if you are a buyer, then the quantity that you demand is going to increase as the price goes down.
The point at which these two curves meet, where the desire to buy and the desire to sell coincide, is called “equilibrium.”
When it comes to talent, both the supply and the demand change regularly, and with them, the point of equilibrium does as well. In other words, the market rate for a given worker also fluctuates.
The only true indicator of market rate is real-time transactional data. Like a stock’s share price — where it changes the moment someone sells at a lower price or buys at a higher price — it is that single transaction that sets the new market rate.
There are of course other ways to ensure you are acquiring talent at market rates. You need good consultants working on your positions. You need consultants who are aware of market influences and work on your behalf to secure market rates rather than simply posting jobs, waiting for candidates to respond, asking them how much they want and then forwarding them onto yourselves.
Companies also look to competitively bid on overall bill rate alone, to create additional competition among suppliers. By doing this, suppliers can trade one margin against another and sacrifice their own revenue to win the placement. This type of competitive bidding works well on roles where talent is in plentiful supply.
The rise of the human cloud and online staffing platforms will (at some point when sufficient candidate adoption is achieved) go a long way to self-manage rates through automated competition mechanisms.
So, when looking for suppliers to predict future pay rates, treat those forecasts with caution and do not give future rates disproportionate weighting when evaluating bids, because they will likely be retired to the bottom drawer for the duration of the contract period anyway.