In our last post, we provided an overview of the metrics you need to watch as a staffing business owner. Now, in this post, we’re going to drill down on margins. Simply put, are you comfortable with your metrics and other understanding about margins? You can be a very savvy business owner and still have a blind spot here.
For example, many owners and operators look to sales revenue as a yardstick.
But that’s not the right approach for these 4 reasons:
Temporary wages and benefits may vary greatly from one staffing firm to another—or even from one job order to another within a staffing firm.
Workers’ comp costs will vary based on a staffing firm’s business mix, location and experience modifier.
State unemployment insurance costs will vary based on location and experience.
Other direct experiences such as administrative fees to a VMS or per diem paid to contractors.
So, why focus on your margins?
For these and other reasons, you should be focused on margins instead– on your gross margin percentage and gross profit dollars each month – both with and without the impact of direct-hire.
- Gross profit equals sales revenue minus the direct costs associated with those sales. These direct costs include temporary employee wages, workers’ comp, FICA, federal unemployment, state unemployment, health and other insurance costs as well as MSP/VMS fees. Gross margin is the percentage of gross profit divided by sales revenue.
- Gross profit dollars essentially measure the revenue available to operate the staffing firm, and they can be measured at the level of a branch, service line or for the company as a whole.
- When evaluating gross profit, it’s very good to look at industry benchmarks to see how well they are doing compared to other similar businesses as well as looking at monthly and quarterly trends to ensure your business is really trending in the right direction.
- One last thought: You should measure direct hire fees separately from temporary staffing gross margin. “Perm fees” skew gross margin calculations and result in another feel-good measure by looking higher than your core business, contract staffing, actually is. It is impossible to watch trends easily unless you separate both.
Madison’s business intelligence services can help you here. In the meantime, here’s how an understanding of margins can help both you and your client.
One way to keep your margins intact is to communicate them transparently to your client.
How To Communicate Well With Your Clients
1. Communicate directly and effectively.
This is easier than ever with the Internet, mobile devices, tablets, and other avenues. Find out if your client likes phone calls better than emails – believe it or not, some customers still respond better to phone calls (it’s true).
2. Be honest.
This one is simple. No relationship can be sustained without honesty. This also ties into communication. Even a fib regarding not returning a phone call can impact your overall relationship.
3. Be a trusted resource.
Here’s where you step your business up to another level. Let your client know what trends you are seeing, what hiring is like, and how business is doing overall. Pretty soon they won’t imagine doing business with anyone but you.
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Enjoy and understand your margins…there is magic there, and success. This helps with the health of your company and your client relationships. Contact us today to see how we can aid in your success!