How to Kill Profits in Three Easy Steps

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Do you ever get the feeling that while business is booming, and you’re busier than ever, it’s not reflected in your bottom line? Or it’s more than a feeling, it’s a cold hard fact when you do the numbers? There are many problems that kill your profits, but this article will focus on workers’ compensation MOD, unemployment costs, and competing on price/margin. We’ll take these in turn and offer suggestions about how to sidestep these pitfalls.

Experience MOD Rate

Let’s focus on workers’ comp first. Your MOD rate can affect everything from bids to profits.

Understanding your Experience MOD rate, then, is vitally important. Put in basic terms, a MOD rate compares your workers’ comp claims to those of other businesses  and business category . In the case of MOD rates, it is expressed as a function of the standard national rating system (NCCI). 1 = theat your  experience of losses is equal to the standard predictable level oflosses. Below 1 is better as you have less than standard. Above 1 means you are experiencing morew claims than standard. Customers may relate your people of processes to the mod factor in selecting who they want to provide people.

Your MOD rate will directly affect the workers’ comp premiums you pay, either with a discount or a surcharge. It will also greatly impact your business, because clients are becoming increasingly safety-conscious (a good thing) and many are refusing to work with subcontractors who do not control their MOD rate or are out of whack with the industry average. In some cases, a bad MOD rate will preclude you from even bidding on a contract.

Of course, staffing firms have special challenges, as your workers are off-site. But nevertheless there are steps you can take.

So what to do? Understanding the MOD rate is a great first step.

Instituting safety programs and training for your workers is also important. At a minimum, as a staffing firm, you should provide your temporary and contract workers with safety information. Tell them what they are NOT to do and what they should be doing.

An equally important step is educating your client. This not only helps strengthen your partnership, it avoids confusion. You can talk to them about co-employment regulations and OSHA requirements, and offer to do site visits as well.  You’ll want to determine the conditions of the work site. At the end of the day, less worker injuries and safe conditions benefit everyone, above and beyond your MOD rate.

Unemployment Costs

Put simply, you as a staffing firm have the same state unemployment insurance costs and liabilities for unemployed workers as any company has for their employees that might experience a layoff.

It’s also in your very best interest to keep good contract professionals as they move from one position to another, whether it’s a contract or permanent position.

At Madison Resources, we’re here to help. With our ATS/CRM software, you can keep track of applicants, records, placements, and more.

You’ve got a drag-and-drop resume loader; automatic job matching to candidates; and dashboard reporting. You’re able to schedule follow-ups, and the software enables you to monitor sales and recruiting activity.

If it comes to an unemployment claim, you’ve got records to prove how you’ve offered other work to your client, and you’ve got a clear look at your interaction with your client.

But the bigger picture is that an ATS helps keep your contract and temporary staff working, keeps your business clients happy, and cuts your costs and lessens your headaches.

Competing on Price and Margin

Sales are up, but profits are down? Competing on price and margin to the detriment of your profit is a temptation best avoided. We don’t mean you shouldn’t be competitive on pricing, and you should be very aware of what other staffing services in your area are charging. And we realize that saying no to business seems intuitively wrong. But for the health of your business, you need to assess new orders and existing business carefully.

If you take every order you can get, you’re facing a losing proposition because you’ll be taking contracts your competitors don’t want and that don’t make sense financially.

There are some caveats to this. If you’re a new business and want to grow, you might pursue all business as a means to an end, and to get the word out about your services. If this is the case, make sure you have the financial capital to handle this strategy. At best, this is a risky proposition – your dollars may be better spent on marketing and sales and going after the business you want.

Another caveat is if there is an irresistible client in your area, say for instance a national or well-known company. Then you might take a marginal order just to get your foot in the door. This sort of loss-leader strategy might allow you to penetrate your client. But again, if you then attempt to increase your bill rate and margin, your client may balk. Nobody wants to pay more than the original rate.

There are several strategies for increasing prices and margins. You can recognize that some clients will always be price buyers. If this is the case, you may consider ‘firing’ your clients.

You can also increase your profits by specializing your services and trying boutique niches. This change in your business mix might involve hiring new salespeople and recruiters, but could be just what you need and worth the investment. It’s the right time to think about this strategy as 2016 sees the skills gap continuing to widen.

At Madison Resources, we hope to see staffing firms avoid these profit killers. For more information, and to keep your business healthy, contact us today!