Perhaps never has the flipping of a calendar been more welcomed by humanity than it has for 2021. The approval of several Covid-19 vaccinations is ushering in a profound sense of hope as the world grapples to overcome this unforgiving pandemic. Positive sentiment in the financial markets also reflects an anticipated rebound in the global economy in the coming quarters.
The staffing industry is generally quite cyclical and that was certainly the case in 2020, where SIA projects the industry contracted by 16% globally, following a year of 2% growth in 2019. Of course, this is a measure of staffing revenue, but what about gross margins? SIA recently published its annual Gross Margin and Bill Rate Trends – December 2020 Update report that can help us answer this question. The report includes gross margin analysis of publicly traded staffing companies that do business in the US and, separately, a study of historical temporary staffing gross margin trends across a significant sample of US staffing firms participating in SIA’s Staffing Industry Benchmarking Consortium (SIBC) surveys.
As it relates to the SIBC survey, the impact of the pandemic will first come into focus with the next study to be conducted later this year (see the SIA surveys page for additional information). However, earlier SIBC data collected dating back to 2010 shows us a glimpse of cyclicality present in temporary staffing gross margins during a time when the economy was in the very early stages of recovery from the Great Recession. SIA’s IT Staffing Growth Assessment: 2020 Update takes this analysis a step further by stripping out trends specific to IT temporary staffing. There we can see average gross margin was just 18.6% in our 2010 survey, well below 24.1% in 2019, the final year of a historically long economic expansion.
However, our analysis of 16 publicly traded staffing firms doing business in the US already exhibits the pandemic’s influence on quarterly gross margin trends through the third quarter of 2020. As shown in the chart below, average gross margins among this group are clearly on track to contract in 2020, which we attribute to the economic downturn resulting from the pandemic.
Average gross margin change year-over-year among publicly traded staffing companies
Source: SIA, company reports
The data suggests IT staffing profitability would stand to benefit two-fold if the current rollout of vaccines proves to be effective. We would anticipate the resulting increase of economic activity to spark a return to IT staffing revenue growth and serve as a catalyst conducive to gross margin expansion. Yet, two more reasons to celebrate the turning of the calendar!
For those interested in digging deeper into staffing gross margin trends, we encourage you to register for our first Staffing Industry Report webinar of 2021 scheduled for Jan. 19. Access to this webinar series and the SIA research reports mentioned above are included with corporate membership.
