Thinking about SOW? Your clients are
When it comes to buyers’ plans for their overall and contingent workforce in the next couple of years, there is good news for IT staffing firms … and an opportunity to expand another line of business.
According to Staffing Industry Analysts’ 2013 Contingent Buyer Survey, the penetration rate of contingent IT workforce was up in 2013, and while buyers intend to continue increasing their use of temporary IT professionals, they are even more likely to use statement of work (SOW) engagements and hire full-time IT workers.
In general, the contingent penetration rate amongst all buyers was up in 2013, with the average contingent proportion rising from 16 percent to 18 percent, the report said.
The share of contingent workforce for the buyers who primarily purchase IT skills is currently 19 percent and projected to increase to 20 percent in two years.
However, the survey noted that in 2013 buyers of IT skills, on the net, were most optimistic about their use of SOWs. Although, they mostly plan to increase the use of temporary IT staff as well, interest in temp expansion was not that strong. Additionally, all buyer groups, including those primarily purchasing IT skills, plan to use fewer independent contractors compared to 2012, reflecting the increased scrutiny of the IRS and IC compliance issues and risks.
Which brings me back to the opportunity I talked about in the beginning of this blog. According to our 2013 Staffing Company Survey, 74 percent of IT staffing firms are generating at least some SOW business, with such engagements being 10 percent of their total revenue at the median.
Considering the direction your buyers are headed, there is definitely scope to increase the proportion of SOW/projects/IT solutions business in an IT staffing firm. In cases where it is a good fit for a staffing firm, SOW can be pretty rewarding with high margins and high valuations. However, it is also accompanied with higher risks. I am definitely not saying that this is THE growth strategy for all staffing firms, but I definitely think it’s a worthwhile exercise to figure it out. Using this handy-dandy checklist could be a good starting point to do so.