Good morning, Staffing Agency Entrepreneurs. Today I am visiting the lovely San Diego area, and today we’re going to talk about staffing agency revenues and pricing.
I am visiting San Diego because I am attending the American Institute of Tax Planners Conference for Certified Tax Coaches. For Staffers new to me, in addition to being a Certified Public Accountant, I’m also a Certified Tax Coach. This means that I do some pretty complex tax planning with my clients. The minimum net income for my clients for which I do tax planning typically is a net income (or profit) of $250,000, and on average my clients have at least $500,000 in profit or net income. For those staffing agencies out there who are currently not at this profit range, don’t worry, I am also a Certified Profit First Coach, and I love coaching and strategizing to help you get to this level of profitability and beyond. A shocking fact about most of my clients for whom I do Strategic Tax Planning… they didn’t start out with bottom lines at this level. Rather it was through a series of intentional actions, guided by coaching that they have been able to achieve income levels beyond their dreams.
What differentiates me as a CPA and Certified Tax Coach is that, while most of your local CPA will tell you, “Hey, in order to get your taxes down, go ahead and buy that truck.” As a Profit First Professional, I will never tell you to buy a truck unless you really need THAT truck. Instead, I will look at alternative methods of saving taxes such as deferring income, looking at retirement options where we can max that out, or looking at qualified opportunity zones to defer some capital gains. As a Certified Tax Coach, I will get into complex strategies for you in order to defer taxes instead of sending you out to buy a truck. By the way, buying a truck when you really don’t need it is completely anti-profit-first anyway!
But today what I wanted to do really talk about is pricing and give you a tidbit of what I do with some of my coaching clients, and particularly I am not just going to focus on pricing but particularly the markup. One things that I see with business owners and entrepreneurs is there is always this apprehension about increasing prices or even charging a fair price. It’s almost like there’s this fear that, “If I charge a fair price, if I charge the market rate, I might not make the close, I might not get the client. “ As a result of this fear of pricing their services in the correlation with the value that they provide, business owners will tell themselves, “Okay, I will decrease my markup just for you, I’ll discount it if you’re going to buy more services.” And they wishfully believe, “I’ll make it up in volumes.”
I am going to put a link to my video that we did a while ago about the pricing and the importance of pricing adequately. However, what I really want to talk about today is, the mental mindset that goes around pricing. I think particularly for the staffing agency industry, revenue can be misleading. When staffing agencies think about volume and sales, usually the staffing agency is placing several different temporaries out there in the field. Due this volume of placement and the general cost associated with the placement, is not unusual for a Staffing Agency to see millions from the get go, and with the right contracts, a lot of them can see millions of dollars just from the start up. With this high revenue, there’s an illusion staffing agency entrepreneurs have to look past. The millions of dollars are fleeting. The staffing agency entrepreneur really has to consider the cost that they will incur to provide the services that will support those millions of dollars in revenue. The top line revenue is FAR from the bottom line number. There are cost such as the payroll for those who are actually placed in the workforce; there is cost associated with recruiting that workforce; there is extensive software needed because you will need a more robust payroll system simply because you have outgrown QuickBooks payroll which limits you to only 250 employees. There is a lot of costs that goes into scaling a staffing agency enterprise.
When a staffing agency discounts it’s prices, what happens is now the Staffing Agency must absorb the costs out of it’s profit. When there is discounted prices, overall profit is less in comparison to what the staffing agency could have potentially made had it just charged the market rate. Not only does discounting prices impact profits, it also results in shortchanging the growth of the business and the team. The staffing agency is shortchanging it’s business because now it has less cashflow to work with. Now the staffing agency entrepreneur is forced to make decisions of, “Okay, granted, the person that I placed is the person that I placed, but who internally is going to find that person I’m going to place?” Now because the staffing agency entrepreneur has less cashflow, the staffing agency has to make very different decisions. Now instead of hiring an internal team member that is an “A” player, the staffing agency might have to settle for a “B” player, or even worse, a “C” player who isn’t going to be as efficient and who isn’t going to be as experienced as the “A” player.
When Staffing Agency Entrepreneurs think about cutting prices, they have to consider the domino effect and understand that it’s not just a bottom line impact. Now the Staffing Agency is not going to be able to invest in technology to get new equipment that will be able to automate things to operate faster and more efficiently. The Staffing Agency is not going to be able to recruit the person internally that’s going to be able to really serve it’s clients in an “All Star” fashion. And unfortunately what ensues is that the Staffing Agency ends up financing the endeavors of it’s client. In some ways, the Staffing Agency ends up actually serving as a banks for it’s clients because now the client has 30 days to turn around it’s invoice, but in the meantime Staffing Agency is working on cashflows of just what it has right now and these cash flows are tight because today the staffing agency has to pay those temporary employees, pay those internal staff, and pay those costs that the Staffing Agency needs to pay in order to keep the office running.
And so really, staffing agency entrepreneurs, it’s really important to think about that domino effect that happens when you discount your prices. You’re not just charging a price for your own bottom line, you are representing your staff, you are representing your team. And at the end of the day, you’re also representing your client. If staffing agency doesn’t charge a fair price, the staffing agency is not going to be able to put the right people on that job in order to give the client the service and the quality that the client is secretly expecting and looking for. Instead, the client will be placed in a situation that’s high stress, and the client will be working with someone that they potentially didn’t want because they’re working with somebody that doesn’t have the right experience.
So Staffing Agency Entrepreneurs, the best thing you can do for your clients, your team, and for yourselves, is charge a fair markup. Do not discount your markup, do not underplay yourself, and embrace the concept that not all contracts are good contracts. Sometimes, it’s better just to let a contract go then be bogged down and unable to serve the right contract when it comes along. When a Staffing Agency discounts it’s price, the staffing agency has to land another contract that’s going to subsidize that cashflow and make up those margins. Then at that point, the staffing agency is playing a float game, and “surprise” float games come to an end; and someone usually ends up loosing. You’re better off, literally, just saying “no” to the customer that’s not willing to value you at the worth that you bring to the table.
Until the next time we meet again, I look forward to seeing you guys!