Calling the Shots
Why mandating specific metrics can be bad for business
By Sanjay Shah
Are you being held to standard markups?
Most suppliers would nod yes, but here’s the problem to watch out for. Contingent workforce programs that mandate a set markup rather than set bill rates can prevent companies from receiving the best quality talent — they instead focus on talent whose rates fi t into this model.
So what should clients focus on? After chatting with other industry experts, I came to the conclusion that a client’s focus should be on the invoice rate the staffing vendor charges to them and on comparing how competitive this is versus other staffing companies’ rates and the quality of their people.
What happens when customers force a standard markup model? In a word: mediocrity. If a staffing company’s invoice rates are very competitive and the quality of its service is high, continuing to impose markup rates will result in average performances. Customers — and ultimately your staffing firm — will not be able to attract the high-performing candidate.
Despite very low unemployment in the IT industry, many consultants are willing to work for a competitive rate — but not necessarily the highest rate — if they value the service their staffing company provides. It’s easy for contractors to vote with their feet and move to another contract or even another agency if they are not happy. Outside the IT industry, where demand is also rising, many staffing firms are fortunate enough to keep their contractors on assignment without losing them to a competitor that pays higher prices, while in the past, a mere 25 cent raise would entice contractors to leave assignments and switch companies.
So why wouldn’t the contractors work for the absolutely highest rate out there? Loyalty, which reflects the value they see in having a long-term relationship with staffing companies that have low internal turnover. If the staffing company really understands the market and knows where the best projects are, that’s also of value to the contractor. Most contractors feel that if they are being paid on a timely basis and getting great personal service along with other intrinsic values that are not apparent in the markup rate, they are more likely to value that relationship highly, and they will be willing to work for a lower competitive rate.
These relationships are invaluable between the contractor and the staffing agency and are clearly seen in assignment completion metrics. In most cases, contractors accept extensions at the same rate, even when they could bill for higher on another project or with another company. If the staffing vendor is offering this excellent level of service, which helps attract and identify the best candidates for the clients, they shouldn’t be penalized by having programs that are focusing on profit margins versus the competitive invoice rate.
Teaching the Client
As customers build the second generation of their contingent workforce program, are they losing focus of the fundamentals or the initial reason their organization built the program? Most programs started off with the vision of controlling costs and measuring supplier performance — not dictating markup rates. The goal of these programs should continue to be to manage the competitive bill rates that suppliers are being paid and not to manage the suppliers’ internal margins. And that’s where the supplier comes in. Remind them of the initial vision and goals. You don’t want your customer to win the markup war but lose the talent battle.
Ultimately a client needs to decide whether it wants its vendor base to be the least profitable in the industry, which leads to a commoditized lower quality service, or if it wants competitive rates with the best quality of service. I’m betting most would want the latter. The only way to achieve this is to work with vendors that have world-class service at competitive rates.
It is the suppliers’ responsibility to educate the customer accordingly. You need to survey the marketplace and keep the customer informed. Propose regular audits and convey the results. And make sure you are being benchmarked on the right metrics — or you are fighting a battle no one wins.
Sanjay Shah is president of The Judge Group’s Human Capital Management Solutions division, which specializes in MSP/VMS services. He can be reached at email@example.com or (610) 617-1536.