For staffing firms, It’s common to focus solely on strategies that drive revenue. Too often, margins are given much less attention. Keep in mind that tweaking your margins, just a bit, can have a larger ultimate impact on your bottom line than top-line focused activities.
Where Can I Build More Into My Business Margins?
1. Consider your customer mix.
For example, light industrial staffing will typically have much slimmer margins than those found in healthcare or technical niches. If you work in a variety of fields, tipping the balance toward higher-margin roles can increase your average margin.
2. Make margin a priority.
Watching your margin can have a significant impact on your bottom line. Take the time to pay attention to this critical metric. Approach it by controlling both bill rates and pay rates to maximize gross margins.
3. Pay temporary employees better.
Because the talent market is tight and your markup is a function of payrate, paying more can yield higher-quality candidates for your clients and higher margins for you. Don’t cut your margins to increase their pay, rather, encourage employers to pay a higher rate to attract the most in-demand talent.
4. Protect your markup.
No matter how much revenue you generate, markup is where you derive profit and pay expenses. It can seem like a healthy chunk of change, particularly to those outside the industry (according to Staffing Industry Analysts, the average gross margin for staffing firms is over 25%). But so much must come out of that markup before you see what makes it to your bottom line. For example, taxes, insurance, overhead and other expenses.
5. Demonstrate value.
Nothing will make employers see you as a commodity faster than offering the same service level everyone else is. Deliver quality talent, respond quickly, troubleshoot issues and get to know their business well, so that you will be perceived as a true part of their team.
6. Be transparent with your employees.
Business owners often keep their finances close to their vest. Breaking P&L (profit and loss) down for your employees will give them a better understanding of how much actually trickles down to the bottom line and can show them just why offering a discount to get the sale isn’t always the best solution.
7. Reward the behavior you want to drive.
If you expect your salespeople to hold the line on pricing, consider paying them commission on markup rather than on revenue. Being invested in profitability may make them less likely to sell your services short.
8. Understand your costs.
Look at both direct and indirect costs to know where you may be leaking margin. Direct costs represent your largest expense, driving down those costs can have the greatest impact on your bottom line. Indirect costs such as selling, general & administrative (S,G & A) can be easier to manage, but it’s tougher to move the needle significantly.
Are you looking for a partner who can help you navigate your margins?
At Madison Resources, our mission is to make staffing firms more profitable. If you would like additional advice on driving down expenses and maximizing your bottom line, contact us today.