When expanding into the USA staffing market from the UK, the last thing you want to do is to price your deals in the USA the same way as you do in the UK. The margins are much higher in the USA and the expense structures are different, so it’s critical to understand the market norms before you start setting margin goals. These, as well as other crucial insights on maximising profitability, are available below.
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Table of Contents
Effective Pricing – insights and strategies
Maximising profitability during economic uncertainty
Streamline business processes: Save up to 20%
Fostering loyalty and generating repeat business
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Many staffing firms in the UK are seeking out opportunities to expand into the lucrative US market. The United States offers a remarkable opportunity with increased profit margins when compared to those found domestically in the UK. Additionally, the US market is much larger and is continuing to expand. According to industry statistics, the staffing industry in the United States generated over $150 billion in revenue in 2021 comprising 30% of the global market share. While the market is lucrative, it is still imperative that you utilise competitive pricing models that align with market demand and client expectations. Understanding and implementing tactics to maximise profitability by optimising operational efficiency, leveraging technology solutions, and building strong client relationships are crucial to success in this sector. By implementing these strategies, staffing firms can position themselves for success in the US market, improve their bottom line, and achieve long-term profitability.
Effective Pricing – insights and strategies
To develop competitive pricing models, conducting comprehensive market research is crucial. This involves gaining insights into market dynamics, industry benchmarks, regional variations, and demand-supply trends. By thoroughly analysing competitor pricing models, evaluating the unique value proposition your firm offers to clients, and taking into account cost considerations, you can establish a pricing structure that is both fair and profitable.
The gross margins in the US vary with sector (technology vs healthcare vs legal, etc.), but are often higher than UK margins. It is advisable to aim for an average markup of 30%-40%, which will cover various expenses such as back-office operations, sales and marketing efforts, general and administrative (G&A) costs, and financing requirements.
For example, if you have a W2 worker with a pay rate of $100, you need to take into account a burden rate (12% in this case), which brings the total cost to $112. To ensure a markup of 35%, you would bill the client $151.20. This means your gross profit per hour would be $39.20, but keep in mind that this not your net income (as the gross profit does not include back office, sales and marketing, general and administrative (G&A), financing costs, etc.).
As a second example, let’s say you place an n independent contractor with a pay rate of $100 and there is no burden to consider, the total cost remains at $100. To maintain a markup of 35%, you would bill the client $135.00. This means your gross profit per hour would be $35.00.
Additionally, it is recommended to target an average gross profit (GP) of approximately 26% for high-profit firms, calculated as GP/Bill Rate. This benchmark serves as a useful indicator of the anticipated profit earned for every $100 bill rate. This means that for every $100 bill rate, you should earn around $26 in gross profit.
The American Staffing Association emphasises the importance of understanding market dynamics, industry benchmarks, regional variations, and demand-supply trends when establishing competitive pricing strategies. By carefully analysing competitor pricing models, evaluating your firm's value proposition, and factoring in costs, you can ensure that your pricing structure is both attractive to clients and supports sustainable profitability.
Maximising profitability during economic uncertainty
In the realm of recruitment agencies, the outlook for 2023 is a mix of optimism and caution. Although growth is anticipated, expectations are slightly more modest due to economic concerns, heightened competition, and pricing pressure. As a result, winning new clients who can afford to pay for top talent has become a top priority as agencies re-evaluate their strategies. This shift is driven by the need to address pricing pressure, cope with reduced job requisitions, and navigate the uncertainties of the economy. Interestingly, the impact of unreasonable fees varies among firms. However, those who leverage technology to streamline their operations will be better equipped to handle the potential challenges of shrinking profit margins. By embracing efficiency-enhancing tools, agencies can position themselves for success in an ever-evolving landscape.
According to the US Bureau of Labor Statistics, sectors such as healthcare, technology, and professional services have experienced significant growth in recent years. Identifying these sectors with high-growth potential and aligning your services accordingly can help attract more clients and allow you to charge premium rates for specialised talent, maximising profitability.
Streamline business processes: Save up to 20%
Enhancing operational efficiency is crucial for staffing firms to achieve significant cost savings and increase profitability. Highly efficient firms enjoy operational costs that are 15-20% lower compared to their less efficient counterparts. To achieve such efficiency, it is important to identify and address inefficiencies through streamlining operations, automating repetitive tasks, implementing standardised procedures, and promoting collaboration among teams. Automation, in particular, has been reported to positively impact operational efficiency, with automation allowing recruiters to fill 64% more job vacancies.
In addition to streamlining operations, leveraging technology plays a critical role in maximising profitability for staffing firms. A report by Staffing Industry Analysts indicates that 63% of staffing firms are investing in technology to enhance their operational efficiency and overall profitability. One such technology solution is the implementation of an Applicant Tracking System (ATS). Research has shown that 78% of recruiters using an ATS report that it has improved the quality of the candidates they hire. By utilising an ATS, staffing firms can streamline candidate sourcing, selection, and onboarding processes, thereby improving efficiency, reducing administrative tasks, and enabling greater focus on high-value activities such as building client relationships and effectively managing their needs.
One effective way to streamline operations is by outsourcing business processes to specialists like Agile Partnering. As an Employer of Record and back-office solutions provider, Agile Partnering offers expertise in the US market. By leveraging our services, staffing firms can efficiently manage costs and streamline operations. Agile Partnering takes care of back-office tasks and legal compliance, allowing firms to focus on core functions. This collaboration results in reduced costs, improved efficiency, and supports successful growth in the US market.
Fostering loyalty and generating repeat business
Building strong client relationships is crucial in the staffing industry. To make clients feel valued and avoid them feeling neglected, it's essential to establish direct and personalised communication channels. Clients should have access to staffing agency experts anytime, anywhere, ensuring they never feel like just another number. Setting up dedicated channels on platforms like Slack or Microsoft Teams can make a significant difference in client satisfaction. Additionally, understanding clients' specific needs and long-term goals is key. By asking targeted questions and leveraging this information, staffing agencies can create personalised execution plans, building trust and preventing cookie-cutter approaches. Sharing your agency's long-term goals and future ambitions also fosters trust and humanises your brand. Utilising technology, such as data analytics and AI, can assist in determining business goals and predicting growth. Statistical modelling helps in understanding capacity, anticipated growth, and executing plans effectively. By being clear on goals, staffing agencies can establish a culture of trust and accountability with their clients.
Implementing these solutions
In the competitive US market, staffing firms play a crucial role in connecting employers with talent. To achieve success, these firms must employ effective pricing strategies and prioritise profitability. Conducting thorough market research and analysing competitor pricing models help establish fair and sustainable pricing structures. Maximising profitability requires a multi-faceted approach, including winning new clients, leveraging technology advancements, and strategically targeting high-growth sectors. By streamlining operations, automating tasks, and implementing cutting-edge technology solutions, staffing firms can significantly enhance their efficiency and overall profitability. Furthermore, building strong client relationships through personalised communication fosters trust and fosters long-term partnerships.
To further support staffing firms in their pursuit of profitability, EOR providers like Agile Partnering offer valuable support by addressing back-office tasks and funding challenges. By acting as an Employer of Record or Agent of Record for contract workers, Agile Partnering enables staffing firms to concentrate on their core functions of client acquisition and placements, while delegating administrative and operational duties to their trusted partner. This collaboration allows staffing firms to maximise their profits by reducing costs and offloading legal responsibilities.
Additionally, Agile Partnering specialises in assisting UK staffing companies in expanding their presence in the US market, providing the support needed for successful growth. By implementing these strategies and forming valuable partnerships, staffing firms can position themselves for sustained success, increase profitability, and play a significant role in the ongoing achievements of the industry.
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