Think about the last time you needed plumber or a technician. Did you call up and ask, “What’s your hourly markup?”
Heck, it’s that time of year where you may be hiring a landscaper to put down several cubic yards of fresh mulch. When you called, did you ask, “What’s your markup?”
Better yet, imagine yourself finishing up a meal at that favorite local dining establishment. You just received the check and before paying the bill you ask the manager, “What’s your markup?”
It certainly seems odd to ask a plumber, a landscaper, or a restaurant manager for their markup. Yet in the staffing industry this has become an all too familiar practice. We give our markup information to clients. Even worse, we give it to prospects that have yet to commit to being a paying customer.
Hopefully we can agree that it would be strange asking markups of plumbers, landscapers, and restaurants. It should be equally as strange for customers/prospects to ask this of our staffing firms. After all, they do not know your operating costs or what you actually net from the markup. Yet, time and time again staffing firms hear customers say, “That markup seems high.” (Compared to what…Harry’s sweat shop down the street?)
The unfortunate reality is that we can only blame ourselves. You cannot blame the customers/prospects for asking when we so readily give it out. Yes, we allowed “markups” to become the center of discussion and we permitted such a request to become common protocol. So it is up to us to change the language and right this wrong. How?
Speak hourly bill rates and for goodness sake STOP selling the farm by offering your markup. It’s insanity.
= = = = =
Connect with Jim on LinkedIn: http://www.linkedin.com/in/jfcstaffing
Jim’s Twitter: https://twitter.com/#!/JimCarchidi
JFC Staffing website: www.jfcstaffing.com
{ 39 comments… read them below or add one }
Jim,
You are so right! I certainly hope our industry is not doing that, however, how about all of those major companies that dictate our markup and our industry gets on its knees and gives them everything they dictate.
One of our major clients just went with a National firm who can’t deliver. The client invited us back under the terms/deal they contracted with the National.
NO THANKS was/is our response!
Until our industry develops some pride and values what they can do, we’ll continue to be our own worst enemies!
Joe
Well-loved. Like or Dislike:
16 
2
Thank you for contributing to this topic Joe. It’s definitely an interesting dynamic we have with customers now demanding markups.
Great response Joe, and I completely agree.
You got me curious now, as we’re dealing with the same scenario with some of our larger clients; what did your major client end up doing? Are they still running on markup, or thinking about transitioning to a rate card?
Ryan
Like or Dislike:
0 
0
Interesting point. So in not answering the question, aren’t you basically just saying to the client, “You do the math”?
Figuring out the difference between pay and bill rates isn’t rocket science and deducing the markup from there is 8th grade math. If a client/potential client wanted to know the markup, they could certainly figure it out.
Some of the arguments you make are valid; however I’m not sure it’s possible to put the Genie back in the bottle.
Like or Dislike:
2 
0
Steven, your point is very true. The fact of the matter is that we have competing realities here. Certainly you can also ask the Plumber, “What are they paying you per hour?” Then you can look at the bill and do the math. However, “Wouldn’t that be rude to ask?”.
I think it might be more akin to reviewing the plumbers quote and seeing what they are charging for parts vs. what they are charging for labor. Then it is simply about comparing labor rates.
I fully agree though that if the relationship has been cultivated and quality of service established, there is little reason to ever present our pricing in a markup form. By then we should have established that we are not interested in being the low price leader, but rather an extension of their current HR Department/Hiring manager.
Much like if you have built a relationship with a plumber and you appreciate the quality of their work; you may not look for a second quote.
Like or Dislike:
1 
0
And Jim, what would be the difference, because whether you know what the plumber is getting paid or not, you’re still getting the service you requested, at the rate you agreed to.
Ryan
Like or Dislike:
0 
0
When we make a placement, does management ask “Did we make a great match?” or “Have we created a long-term business relationship?” ?
Or do they ask “What’s the spread?” or “How many billable hours will that add?”
We don’t ask the restauranteur what her markup is, but if she’s like a great staffing owner she knows her clientele ranges from commodity to specialty and prices accordingly.
Like or Dislike:
1 
0
Gregg, you also make very valid points and talking spread/billable hours seems most acceptable being that it is internal talk within the agency. My point of view is that we, as an industry (specifically the general labor/clerical Temps sector), have allowed the customer to dictate intimate pieces of our businesses such as markups. Not too long ago it was common to service anchor accounts (onsites) with markups in the upper 40 percentile. Fast forward to 2012 and most of these accounts are now demanding markups in the 20-30 percentile, pay net 90+, no additional charge for criminal/drug screens, and oh yeah — the VMS will take 3% off the top. That being said, I think we can agree that the cost of doing business in the general labor/clerical taffing industry has increased all the while our markups have decreased. Its not just the private firms either. Just read the headlines of the publically traded Nationals seeing revenues up (in the headlines) and then further down within the article you see that their gross profit/margin is down. My main point is to urge fellow industry peers to change their language. We provide value and talking markups only diminishes the perceived value in the eyes of the customers. Speak bill rates, turnover costs, pace of material handling costs, and do your best to not stupe to heckling over bill rates.
Hey guys, it’s tough out there for buyers in corporate america now. We have to show a savings of at least our salary to keep our jobs. that’s why we are asking for markups.
Like or Dislike:
0 
0
Jim,
I’d encourage you to take a look at both Adecco and Kelly Service’s recent Q1 financials. Both of these “nationals” were up 1% in revenue and much higher in profit YOY. In reality, it’s the mom and pop shops that are desperate for business and have few scruples that give companies that use 1-5 people markups in the 20′s, let alone what they do kickback wise with on site level accounts. They can afford to do this because they pay recruiters $10 an hour, use an undocumented workforce, don’t abide by contract requirements, and play with their WC. It USED to be that nationals would have pricing leverage because their size and volume allowed them to get better rates on things such as background / drug testing, recruitment source costs, and synergy among internal brands and locations as well as self insured status allowing them to not be at the mercy of WC carriers but today things are much different. If you pay attention to our industry you would see that the global / national companies are starting to take a stand and implementing much stricter GP requirements because we are worth it. We’ve allowed our industry to become very commoditized and need to make some changes. Manpower’s CEO Mr. Joerres has been very vocal in this as well as Carl Camden from Kelly.
Hot debate. What do you think?
3 
6
InTheMajors: how is then that you explain Manpower and Kelly’s disastrous return on investment over the last 25 years? Unless i have my monitor turned upside down both of them are suffering through plummeting valuations.
Like or Dislike:
1 
0
Gregg,
I understand that your core target audience is going to consist of small to regional size firms based on your product offerings so I get that you have to stick up for the mom and pops. As I said in my post, it USED to be that the national and global firms were the ones that were able to offer quality at a lower price. IF you look at the past 8 or so years though you would see that it has been the small companies that offer rediculous rates because that is really what they can sell on. I would challenge you to tell me about the financials of ANY mom and pop over the past 25 years as you ask about Manpower and Kelly but you can’t because A) they aren’t publically traded so they aren’t available and B) very very few have been able to last that long. I would hardly call Kelly’s recent stock performance “plummeting” by the way. It’s hovered between $13 and $15 a share over the past 6 months and one week its up, the next it’s down. It’s gained since Q1 results were announced and again, ROS and profit were both up YOY pretty significantly.
Like or Dislike:
1 
0
Yes, InTheMajors, rabbit-kicking the nationals is the best easy fun i have. It certainly isn’t golf.
I’m not sure why Kelly makes an easy target for me though. When my Dad started his company in 1974, the Sacramento market was dominated by a highly successful Kelly manager (Katherine Lowe was her name…strange i can remember that 38 years later when i can’t remember where i put my glasses three times a day). She was a very ethical, hard-working woman, a great example to learn from.
She raised all boats.
Like or Dislike:
0 
0
It’s likely because Kelly just isn’t very exciting. They don’t have a ton of high profile aquisitions like Adecco with MPS or Randstad with Spherion, or Select with well, any of the seemingly endless ones over the years. I do think though that they have a nice story among the majors as the industry founders and I like that they are still very much family owned even though they are publically traded. Select is always my personal “kick around” target among the national firms. I can definitely go off on a tangent regarding their shady practices giving us ALL a black eye. At the end of the day, national firm or local, it’s always the local people at the branch servicing the accounts that make the difference.
Like or Dislike:
1 
0
InTheMajors: one more Kelly story.
My daughter decided to take some time off from school and is temping for Kelly at a Fortune 500 company. They had her doing data entry but that moved to html and then to javascript. Now she’s coding a gif-animated geographical map for end-users.
If that isn’t a ‘temp’ success story i don’t know what is. I’m trying to recruit her now. Suggestions?
Like or Dislike:
1 
0
That is a great story Gregg! Those are the types that I wish news outlets would pick up on more as I believe that our industry truly does have a lot to offer to motivated, talented individuals! I’m glad to see that Kelly has been able to give her a good experience. I really do respect them as well as some of the top leadership at Adecco and Manpower.
Like or Dislike:
0 
0
Inthemajors, again we have competing realities. Each side owns a piece of the truth and each sees things through a different lenz. Please know that this topic is not a platform to label others. It’s to discuss the issue. Certainly volume pricing is a legitimate advantage to some. Certainly you did not mean all mom and pop shops are unethical desperadoes seeking business. Let’s keep emotions out of the conversation everyone and speak to the issue. I appreciate it.
Jim,
I don’t believe I allowed any emotions into my earlier post. I’m simply stating facts and observations of my 15 years in the industry. By no means am I attempting to paint all local firms with the same brush. In the Commercial staffing side of Southern California market (Professional and Technical firms are a different story) where I have spent my career, local firms with ethics and true service offerings are the exception, not the rule. There are a few though that frankly, I respect the heck out of for their service levels, ethics, and reputation. I can tell you that I’ve never had a national come in though offering a 24% mark up on warehouse business sight unseen but I’ve had a ton of locals that do just that. I completely agree with the point that we should be quoting rates, however as Steven said, I don’t think we can put that genie back in the bottle. Clients are too used to controling pay rates at this point enabling them to easily figure out the mark up even if we don’t outright release it to them.
Like or Dislike:
0 
0
Very interesting Majors. I planned on expanding to Southern California and its interesting to hear the trends of locals using a lower markup. Here in the midwest, its not uncommon for “nationals” to use a clerical markup for everything, weather its heavy construction or CDL drivers. And I’ll go on record to say Express is the worst culprit. How can you only charge a 24% markup on a CDL driver or someone that 100′s of feet in the air on a metal beam? And I know because I’ve asked and I ask to see the agreements when such a low rate is given.
I know you said that you’re not painting ALL locals deceitful and unethical, but you sure are painting the picture of it.
Like or Dislike:
0 
0
Stephan,
I would strongly discourage you from Southern California expansion if you care about your margins at all. The fact of the matter is, the local economy is coming back but very slowly. You have some of the largest unemployment rates in the country, the worst HR and WC climate in the country, a ton of national contracts, and I’m not joking when I say that I run into 1 office shops offering a 24% mark up on LI business without even taking a site tour. The only way to grab a foothold is by hoping to scoop up a really good local rep that can take a book of business with them (which I find very unethical by the way) or by having the patience and resources to take a loss for a year or two while you find GOOD PROFITABLE opportunities. Best of luck with whaever you choose.
Like or Dislike:
0 
0
Hi,
I would like to weigh-in on this unfortunate occurance with mark-up’s. I have experience on the corporate level and in the Mom and Pop staffing business and throughout the 20 years I have done this it has been an unfortunate fact that mark-up’s are NOT the result of the little guys but the valuation that the larger services provided for the client’s information to hold over everyone’s heads for pricing and volume. The mark-up point came about because the industry itself was more interested in gaining volume of business at a discount rather than focusing on the service standards provided/needed for each client’s location and price mark-up is where we did it. The industry itself started the problem and it was not with the little guys being desperate or using the wrong work comp codes, it was due to the client’s not being fully educated by us as to what we do as staffing companies to give our client’s the best skilled and experienced people we can and all that it entails, not focusing on discounting which is what mark-up percentages are used for. I completely agree with Jim that the discussion should be on why we ALL should educate ourselves and our clients as to why this is a bad business practice for the industry itself and our client’s staffing needs and not point fingers as a generalization, in my humble opinion.
Well-loved. Like or Dislike:
10 
2
Melinda and Jim, thanks for the well-thought out responses. I think though there is another dimension to the price discussion: newcomers. First, a story…
I recently met up with a friend in Pittsburgh, an exec with a Fortune 500 firm. He manages smaller factories around the country and conversed easily on temp industry pricing, VMS, backsheesh, and worker comp. He lamented that without the illegal aliens, America was in no position to provide capable workers at prices that could compete with plants in China or Mexico.
He also shared that with just-in-time manufacturing a lot of work is in fact coming back to the USA and demand for labor at a particular plant changes drastically from one day to the next to keep up with just-in-time demands of the market. 10 workers one day and 250 the next.
He uses a national and smaller firms. Although his cut-rate deal with the national stipulates exclusivity, the reality is that their service is not uniform and the fight between plant manager and corporate procurement over this issue of non-performance by the national has resulted in each plant doing whatever they see fit.
Finally, getting back to your point of where the low rates originate, this gentleman oddly enough is considering leaving his comfortable executive position. He wants to start his own temporary firm and one part of his strategy is to build up initial volume by competing of course based on his contacts but also on PRICE.
We’ve all seen this done over the decades by market entrants. Gain exposure in the marketplace by offering the client a good deal.
Like or Dislike:
2 
0
I agree with everyone on this topic and agree that when it comes to low-skilled or no-skilled labor; price is a more obvious factor in choice. Regarding unethical business practices, that is a real shame. We all suffer when someone in the industry compromises integrity. Unfortunately, the low/non-skilled labor staffing sector seems to be increasingly suffering from the “few” who are taking short-cuts. All my best to every ethical competitor who operates their businesses with integrity. We are all in this together!
How can you agree with everyone? They are arguing against each other.
Like or Dislike:
0 
2
I can agree with everyone because there are competing realities in this matter and that we all own a piece of the truth. It can’t be surmised by a broad brush stroke.
As the owner of a “Mom & Pop”, A2Z Staffing LLC in Carson City, NV, we are dealing with the markup issue on a daily basis. The Huge Corporate players have forced us to work our markups to a ridiculous level to earn business. We assess this scenario on a daily basis. We are making a move to quit competing on price by forcing others to compete on quality. As a local company with an ability to be flexible and to meet specific needs of our clients, we are able to rescue companies from the poor quality and rigidity of our large competitors. Granted, the first question we field is “What is the Markup?”. By following our motto – “Experience…Employed” we have begun to make our name known as the go to company when Quality is the concern and companies truly want a skilled employee. We can provide warm bodies all day at a discount, but our clients trust us to provide quality. We are doing our part to change the general perception of the temp market in our area from distaste to excellence on demand. Our clients may pay a bit more, but as we tell them…”You will get what you pay for”
Like or Dislike:
2 
0
it’s not popular but sticking to your principles and plan can make for a good business as you’ve seen
Like or Dislike:
0 
0
Here is something you might want to think about… The underlying value in recruiting firms has historically been the fact that they knew people. They knew hiring managers within companies and they knew individuals that possessed desired talents. Staffing firms invest significant amounts of time and money ensuring that they get to know these individuals.
Now you have to ask, is the skill of knowing people as valuable today as it has been in the past? In today’s world where almost anyone can be found, and friended for that matter, with just a few clicks, should the skill of knowing and finding someone be worth as much today as it was in the past? I would think NOT. So perhaps, you are missing the bigger picture here. You are focused on discloser of margins, however what is really taking place is commoditization of the industry. The underlying value in the business model is no longer as valuable. I believe those that fight this fact will end up losing in the long run.
Like or Dislike:
0 
0
David…The internet has played a powerfully disruptive role on the staffing industry over the last twenty years, so I’m glad you brought up the topic.
First we saw Monster in the mid-1990s grab a lot of the value add and now of course LinkedIn sporting its $10+ billion market cap is doing the same and even looking at acquiring Monster.
On the other hand, finding someone in the online sense is still just a small part of the overall recruitment and retention process, and the large number of new, healthy and profitable staffing companies out there testifies to the fact that disruptive forces can both enhance and destroy business models.
I’ll predict that when LinkedIn and Facebook need to up the ante and actually earn income, they will turn the screws on its users even harder with spam and other desperate moves. We’re seeing this already with SocialCam and TOS changes on Facebook.
Like or Dislike:
0 
0
I have a request of those who don’t feel talking markups is normal: every purchase you make in the next week ask first , “What’s your markup?”. Whether its a pack of gum, a happy meal, a vehicle…ask every single time of transaction for the markup. People will look at you like you have 3 eyes. It’s just not a proper request.
Typo – request is for those who “do” believe talking markups with clients is kosher.
I am reading this a little late, however, I am loving what I read! I never tell a potential client my markup! The few that have dictated what markup they will pay have been denied as clients by us. The way you worded this article is awesome, right to the point!
Thank you!
Like or Dislike:
0 
0
Thank you Debbie. Awesome is good in my book!
Unfortunately, the large national firms have a tendancy to “low-ball” and quote mark up percentage. Customers are more aware of our terminology and are very educated in our industry. Most customers know specifically to ask what our mark up is and will pull out proposals from the big nationals who are quoting so low that it is barely profitable. One thing that they are not educated on is WC rates and how many agencies simply code everything 8018 and 8810. If all agencies would do a more ethical job at informing customers about true cost to due business, we would not be held to such low mark up rates. We certainly quote by bill rate when we can.
Like or Dislike:
0 
1
In response to the “In the Majors” comment: We are a “mom and pop” shop and here in Atlanta, I find that we are NOT the ones quoting in the 20′s. We can’t. In fact, it is the companies you chose to mention that we run into quoting absurd rates that take the GM well below 15%. They can’t be using the correct WC code. For example, we have met with third party distribution companies that are getting 20-26% form some of these nationals. The WC code is 8292 and that is MUCH higher than the 8018. When you run the numbers, it is negative GM. Small companies can’t compete with unethical firms quoting such low mark ups. As a small business, we use true WC codes, are not self insured, and do a tremendous amont of screening. We will not quote business that low. I think that was a very unfair statement.
Like or Dislike:
0 
1
Melissa,
I have been with national firms for the majority of my last 8 years in the industry including the largest in the world. I have never seen a mark up in the 20′s EVER, unless it was a payroll account. On the flip side, I had a potential client just last week tell me he had a 28% from a “mom and pop” for warehouse employees. While it’s true that self insured status helps national firms and that the sheer size and spend of national account business can justify lower pricing, I happen to know that just about every national for the last 2-3 years has been focused on higher GP pricing and walking away from business (except Select of course). Also, with the national firms there are checks and balances in place as far as screenings being conducted, the hiring of a legal workforce, and correctly coding positions. I’m not familiar with the Atlanta market but in Southern California where non-competes are extremely unenforcable, the number of local companies and ethics of most of them are likely much different then you deal with there. I’m simply giving an insight into MY market.
Like or Dislike:
0 
0
Uh, here we go…
Nationals introduce price competition becasue THEY COULD (and can) due to national/international bunding of accounts. We should not fault them for that as it was an ethical and wise business model.
Using the wrong WC codes could be played by any agency and unfortunately is a reality.
Personally, in PA there are far more “under the radar” indpendent “temp” agencies that pop up and take business at low rates becasue of unethical/illegal business practices. Heck, just google the words “temp” and “illegal” – you will find WC fraud, tax evasion, placing people of illegal status, FLSA infractions and on and on.
The low to non skilled temp industry is a noble and honrable piece of the worl economy. Unfortunately is is not regulated nearly enough nor can ASA carry the load. Thus there has been an up tick in these “here-today-gone-tomorrow” indepently owned enterprises that avoid detection.
The best thing anyone can do to level the playing field is create a 1 page fact sheet to give all customer/prospect companies. In it lists questions they should get firm answers to in their selection process. Such as…obtain a “Certificate of Liability” and call the insurer to confirm its a real one, ask if they can prove legal status of all employees (e-verify documentation etc.), das for their BANK/FUNDING CO contact information and COMPLETE the reference on them, do a reference on the agency with the local Business Chamber (what is the reputation of this firm?), ask for their process for collecting local state and municipality taxes (man VMS services are not in accordance in this area and getting nailed for it), and so on…
Any other great fact finding questions you think could go on this??? Post them so we all can start using this with companies. The more amunition we give the end users the better off we will stand as law abiding staffing providers. It’s no use to blame one another. There are bad apples in every industry.
My advanced apologies for the many typos in my prior repsonse. It is obvious that I failed to spell check the message. Oops.