Why Margins Matter

Staffers are natural born salespeople. Whether on the sales or recruiting side, we want to write deals and fill orders. It makes us feel good 😊.

Deals and fills are great, but in the end, margins matter. Specifically Gross Margin (GM) as defined as:

Bill Rate – (Pay Rate + Employer Taxes + Works Comp + Financing and Payroll Processing Costs + MSP/ VMS Costs if any) = Gross Margin

Look I get it. Sometimes you must lower the bill rate or raise the pay rate to close the deal or make the placement. But if margins are cut too thin, eventually the business suffers.

“Well, we are still making a little money on the deal”. That’s a common statement used to justify a thinner margin. The word “today” should be added to that statement because what is marginally profitable today may not be tomorrow.

Staffers live in a world that rapidly changes. With inflation around 8%, healthy margins are needed to cover:

· Increase Costs (fueled by inflation)

· Unexpected Losses

· Investments In Growth

Increased Costs

Let’s look at 2 big cost drivers over the past year: Payroll and Borrowing Costs.

Wages are up about 5% year-over-year, thus raising internal payroll costs. And as any staffer with borrowing rates tied to prime knows the prime rate has more than doubled over the past year – thus raising borrowing costs. Its very difficult to cut a low margin deal for a client and then go up on the bill rate later.

Unexpected Losses

Staffers are in the credit business whether they like it or not.

It doesn’t matter how good the credit policies are, at some point a client will not pay an invoice. This is not a cost that can be passed on to your timely paying customers, so margin has to be built into the bill rate to cover an unexpected loss.

See Related Post: https://www.staffersblog.com/post/reduce-risk-improve-cash-flow-sleep-better-at-night

Investments In Growth

Unfortunately, every business will have to invest in additional offices, personnel, equipment, technology etc. Nothing stays the same and if a staffer doesn’t make those investments, they may not stay in business. Again, GM must be big enough to make those investments.

A good example from my past is a major software investment made at my old funding company, Damian Services. As a management team, we decided to purchase software from a company called eEmpact that would streamline our internal processes while delivering a state-of-the-art ATS/CRM system for our valuable clients. Again, without healthy margins – this would not have been possible.

And boy did this investment payoff! Our staffing clients really enjoyed their new recruiting and on boarding capabilities – without having to make the investment themselves.

Since we used the same system to process payroll and billing, overtime at Damian was reduced to almost zero. Plus,- we had growth capacity, more time to service our clients etc. without adding to headcount.

Gross Margin is a very important number to track. Generally, a staffing company should target a GM of at least 15% of the bill rate.



Remember - The bottom line to staying in business is your bottom line!