2023 has been a tricky one in the IT staffing industry with abundant headwinds. Companies had to get creative this year, cutting costs and prioritizing higher-margin positions. In 2021 and 2022, things were much easier on this front amidst the post-Covid boom.

As seen in our recently published IT Staffing Gross Margin Trends: 2023 Update report, average gross margin among the 10 publicly traded IT staffing firms tracked in the report was 24.3% in 2022, up from 23.2% in 2021 and 22.0% in 2020 (an increase of 231 bps over those two years). The 2022 figure was the highest since 2010.

In the report, we also look at gross margins at publicly traded IT services companies. Typically, margins at such firms are higher, and thus in recent years there has been a clear trend among staffing firms to enter the services/solutions space if they did not already have such offerings. In the report, we see that the average gross margin of such IT services firms in 2022 was 28.6%, a respectable 435 bps higher than the average margin at IT staffing firms.

However, in recent years margins at these publicly traded IT services firms have been trending downwards. And yet, IT staffing margins have been trending upwards, meaning the “premium” (difference between IT services margin and IT staffing margin) has been decreasing. In fact, in 2022, this value dropped to its lowest among all tracking periods. As seen in the graph below, the difference was 836 bps in 2018, but down to 435 in 2022.

US temporary IT staffing and IT services gross margin, and difference between the two:

Click on image to enlarge.

This trend of convergence makes sense from an economic perspective, as more firms entering the services/solutions field would push margins down. However, it is worth noting that many IT staffing firms also have their own in-house IT solutions, but there is less public data on such margins. Furthermore, IT staffing companies sometimes combine solutions with staffing in their reporting, making it difficult to accurately assess the true difference between the two.

While an increase in IT staffing gross margins is not expected in 2023, it remains to be seen what impact the shift in resources in such a challenging environment will have on the difference between staffing and services margins.