IT staffing gross margins have historically followed trends in the economy, with gross margins trending downward since the Great Recession in 2008. However, in 2020, IT staffing gross margins proved to be remarkably resilient despite the impact of Covid-19 on the global economy. SIA tracked IT staffing gross margins of 12 publicly traded companies in its recently published IT Staffing Gross Margin Trends report and found that IT staffing gross margins contracted by only 14 basis points in 2020. Gross margins were calculated using financial data from each company’s IT staffing segment whenever possible.
IT staffing gross margin decline in 2020 compared to the Great Recession
Source: SIA and company reports
Staffing firms cited various reasons for the decline in gross margin, including spread compression and higher employee healthcare costs. But while average IT staffing gross margin declined in 2020 in this particular analysis, some companies experienced gross margin growth in IT staffing due to lower payroll taxes and transitioning to higher margin business.
SIA’s IT Staffing Gross Margins report also looked at IT staffing gross margin trends of US staffing firms that participated in SIA’s Staffing Industry Benchmarking Consortium (SIBC) surveys. IT staffing gross margins in the US have been rangebound since 2012 as the proliferation of MSP/VMS served as a headwind on expansion. However, in 2020, SIBC data showed an increase of 74 basis points in aggregate IT staffing gross margin, further highlighting the resiliency of IT staffing in a difficult year. We note that the aggregate increase in gross margin was likely driven by outperformance from larger firms as smaller firms were disproportionately impacted by Covid-19. The median IT staffing gross margin of SIBC participants contracted 66 basis points.
Aside from tracking IT staffing gross margins, SIA’s report also looked at gross margins of IT services companies and talent platforms, which often provide IT freelancers. Among the eight publicly traded IT services companies tracked, average gross margin has steadily declined since at least 2004 and contracted 75 basis points in 2020. Yet, IT services gross margins remain significantly above IT staffing gross margins which has spurred some IT staffing firms to pursue statement-of-work IT solutions, supplementing their staffing operations and capturing higher gross margin business.
Talent platforms also report much higher gross margins than IT staffing. Furthermore, unlike IT staffing, Upwork, for example, has experienced expanding gross margins since at least 2016. Upwork’s gross margin success was extended in 2020 due to increasing demand for remote IT services, which prompted freelancers to charge higher bill rates.
For more in-depth analysis of IT staffing gross margin trends, check out SIA’s IT Staffing Gross Margin Trends report. This report is available to SIA’s corporate members and includes an analysis of IT staffing bill rate, pay rate and spread trends in addition to gross margin.
