“How much should I charge for my services?”
It’s a question that every entrepreneur and business manager asks themselves, and one that’s definitely worth putting a lot of thought into. For staffing agencies, determining the right pricing model will be crucial not just for ensuring the profitability of your business, but also for maintaining growth and providing value to your clients. Get it wrong, and you risk torpedoing your business before it’s even gotten started.
In this article, we’ll be taking an in-depth look at the different pricing models available to staffing agencies and how you can apply them to your business. Having previously looked at how to calculate your staffing agency’s pay rate and bill rate, this article will provide more insight into the vital issue of pricing.
Popular Staffing Agency Pricing Models: Pros & Cons
Knowing what to charge clients for staffing services goes beyond simply determining what to write on the price tag. It also involves deciding how to charge them, when to charge them, and how to do so in a way that keeps your business both profitable and competitive.
This is why the services industry has evolved several pricing models over the years. Each model has its own pros and cons, and determining the right one for your staffing agency will depend on your business model and the type of industry/niche you specialize in. Below are some of the most popular ones in use today.
1. Fixed-Fee Pricing
This is where you charge a flat amount for your services depending on the hours worked. It’s very easy to apply and tends to be what most new agencies start with.
Clients also tend to like it as it’s easy to understand and compare with the pricing models of other agencies. However, it’s not a very flexible system. If the scope of the job expands, then so do the hours, meaning you’re still earning the same for more hours worked.
Pros
- Good for small and beginner agencies
- Easy to explain to new clients
- Good for clients with a set budget
Cons
- Not very flexible, leaving you open to scope creep
- Disincentives an agency to expand their growth opportunities with a client
- Not practical for larger agencies or those who plan to grow larger
2. Project Based Pricing
This model is similar to fixed-fee pricing but is based on the project rather than the hours worked. It can be a great system for businesses with clearly definable services that have a strict beginning and endpoint, like website development or financial audits.
Any job in which the quality of the work done is more important than the hours worked can benefit from this system. But also like flat-fee pricing, you can end up working more hours than you anticipated on a project while still earning the same profit. It is at least easier to scale for larger projects since the money coming in is not tied to the hours worked.
Pros
- Great for work services that can be easily packaged
- Easy to get your foot in the door when prospecting for clients
- Great for agencies with a focus on fast-paced work with quality results
Cons
- Scope creep can easily eat into your profits
- Requires a lot of upselling and marketing to maintain repeat business
- Can sometimes be hard to justify to clients operating on a set budget
3. Value-Based Pricing
According to this model, price is based on the perceived value your agency delivers to a client. Since it’s not based on the hours worked, it’s a very scalable pricing model.
Agencies who use it need to thoroughly understand what their client’s needs are and have a good track record of bringing enormous value to past clients. It also helps if they’re bringing something unique to the table that other agencies don’t provide. As such, it doesn’t work well for agencies that only offer general, dime-a-dozen services. But for staffing agencies that offer highly niche services, this can be one of the most profitable pricing models to implement.
Pros
- Works best when there is a lot of demand and few providers for your service
- Can generate huge profit margins when used effectively
Cons
- Defining “value” can be difficult and subjective
- Also vulnerable to scope creep
- Requires being able to provide something unique that your competitors can’t
4. Performance-Based Pricing
This pricing system is often confused with value-based pricing, but performance-based pricing is all about the end results of your work. Put another way, value-based is about perceived value, while performance-based is about the actual value.
It tends to be the best system for agencies whose work provides clear and measurable results. For instance, if your business is successful at generating leads and getting sales from advertising, this might be the model for you. Each time your client makes money, you make money. However, it requires having a system in place to accurately track and measure those results. It can also be very work-intensive as you have to get results to get paid.
Pros
- Very attractive to clients since you’re sharing the risk with them
- Highly profitable when done right
- Easily scalable with better results leading to better profits
Cons
- Often requires a lot of work and patience before results start to come in
- Results are never guaranteed, if you don’t deliver then you don’t get paid
- Clients hold a lot of leverage over you
5. Retainer Based Pricing
A retainer model is one where the fee is negotiated and paid upfront. The amount is based on either the set amount of time worked or the number of deliverables agreed upon. It’s a pricing model that relies a lot on being able to provide high value to your clients. For this reason, it’s great for repeat businesses and clients who are working with a set budget. It’s also highly scalable and leads to predictable monthly profits.
The only real downside is that if you mismanage your hours or fail to meet your end of the deal, then it can seriously mess with your profitability. Screw up too many times and your agency could be blacklisted, which is effectively a death sentence.
Pros
- Great for clients working on strict budgets
- Easy to track and manage
- Very scalable with predictable profits A highly stable business model once you’ve built up a list of repeat clients
Cons
- Mismanaged hours can cause huge issues that are difficult to recover from
6. Points Based Pricing
This is quite niche, but a very effective model when done correctly. A points-based system works by assigning a set number of points to a project based on value rather than hours worked. The number of points assigned usually changes each month depending upon the changing scope of the project.
This makes it very flexible, as well as predictable for determining monthly profits. It can be very attractive for clients that are looking to mix and match different services without buying a package deal that includes services they don’t need. However, it can be a bit of a confusing and convoluted system that can scare away clients who are looking for something simpler.
Pros
- Very easy for clients to choose what services they need and which they don’t
- Easy to set expectations and adapt to a changing project
- Allows for predictable monthly profits
Cons
- Highly vulnerable to scope creep
- Requires a lot of work to manage
- Can easily lead to your agency taking on more work than it can handle
- Sometimes difficult to explain and pitch to clients
7. Hourly Pricing
Lastly, we have the simplest and most common pricing model for staffing agencies: hourly pricing. You simply set the hourly rate for each service and charge them at the end of the month for hours spent on the project.
If using this system, you’ll need to consider non-billable hours that can cut into your profits. You’ll also need an easy way to track and monitor the hours worked, something that Timerack’s time and attendance systems can do for you. However, the downsides to this pricing model are that it’s not very scalable for larger projects and it takes no account of the value delivered to a client.
Pros
- Very simple to implement and monitor
- Ensures you get paid for every hour worked
- Easy to pitch to clients
Cons
- Not well suited to clients that require specialized niche work
- Can cost you money if a project gets completed sooner than anticipated
- May not appeal to clients that don’t have a flexible budget
Pricing Models: A Summary
Determining the best pricing model for your staffing agency will depend on your business model and what niche you are focusing on. You may want to test a few different approaches to see which one works best. It’s a constantly evolving practice that you may need to come back to change as your company expands. You may even consider taking a mixed approach of combining two or more models depending on the different needs of your clients.
But whatever approach you take the key is to choose a model that is profitable, scalable, and growth orientated. Your ability to upsell clients to additional services will also play a big part in this. The same goes for retaining existing clients and strengthening your relationships with them. All of this can be made easier by using Timerack’s proven time and attendance systems, payroll integration, and hiring processes.
Knowing What to Charge Your Clients
Having touched on how to charge your clients, you’ll next want to consider what to charge your clients. You can work this out by looking at three key areas that influence this decision.
Your Competition
No business of any kind can survive for long without knowing who your competitors are and what they’re offering. Research all the businesses in your local area that are offering similar staffing services to your one. You need to know where they are located, the size of their business, what sort of clients they are targeting, and how much they are charging for their services. You can then use this information to inform your own decisions about what to charge clients.
Potential and Current Client Relationships
How successful a staffing agency depends a great deal on its ability to develop relationships with potential clients and maintain relationships with existing ones. This is where it can be helpful to offer a slightly lower markup for repeat business. Keeping your clients happy will be crucial for success. Know what they’re willing to pay and what their priorities are.
The industry
Most staffing agencies choose to be niche so they can focus on a particular industry or sector. What you charge for your services will depend on what your chosen sector is and what they consider a standard price for said services. The more specialized and unique your services are, the more you can probably charge.
Final Thoughts
Getting your pricing model right is not an easy thing. In all likelihood, you can expect a lot of trial and error until you arrive at a system that works right for your agency. Even then, both your pricing model and service fees are still likely to change and evolve over time, just as the industry you serve changes. Keep all that in mind as you move towards creating your staffing agency.