Having trained or consulted with hundreds of temporary staffing services and contract staffing firms around this country, I am continually amazed by the variety of approaches utilized to handle the transfer of an employee from the staffing services payroll to the payroll of the client’s organization. The term most commonly used to describe this process is “Temp-to-Hire”.
My purpose here is not to discuss whether or not you should charge your client a conversion fee for the temp-to-hire process. Rather it is to provide you with a conceptual foundation on which to make that determination. Consider the following two realities.
First: Each time a client pays your invoice they are in fact stating they have received a value equal to or greater than the amount they are asked to remit. If this were not the case, they would have asked you to pull the temporary/contractor off the assignment. In essence, they are paying you a fair amount for the contribution the temporary/contractor has made to their firm. In legal terms, this is a perfect example of quid pro quo – getting something for something. The relationship/transaction is in balance.
Second: The temp-to-hire is actually the transferring of an asset. While the temporary/contractor is employed by the staffing firm they are a recurring asset for the firm. Once the temp-to-hire is completed, the temporary/contractor becomes a recurring asset for the client’s organization. The transferring of a recurring asset has taken place.
Using these two realities as a conceptual foundation, ask yourself: “What is the justification for a conversion fee?”
The response I most frequently encounter is: “Because my client expects some consideration.”
Some consideration for what? For benefiting from your service and gaining your recurring asset? No! Some consideration for being a loyal client whose on-going business you appreciate? Yes!
From purely a logical standpoint, conversion fees do not make sense. However, from the human nature perspective, they do. Therefore, how should you determine your conversion fee policy?
As a first step, stop calling it your conversion fee. Reference it for what it is, your transfer fee (remember, it is the transfer of an asset). This should help the client understand your position, i.e. to this point you have had a quid pro quo relationship and now you are asked to transfer an asset from your firm to your client’s.
The client should pay a reasonable fee for this transfer, regardless of how long the temporary/contractor has been on assignment.
Fact is, most staffing firms leave too much on the table when doing temp-to-hire. They allow for the payment of a heavily discounted fee or, no fee at all depending on how long the temporary/contractor has been on assignment. This is not necessarily a reflection on market conditions or competitive environment. Rather, it may be a reflection on the staffing professional’s sales ability (or lack of). Some staffing firms literally give it away and leave much on the table. While others, competing in the same market, receive a reasonable return for the transfer of their asset.
It is a matter of perspective, confidence and training. In every industry, staffing included, selling low prices and heavy discounts is the purview of the weak, the untrained, or the commodity broker.
Therefore, review your transfer fee policy against the concepts presented here. Are you receiving a reasonable return for the value you deliver? If so, congratulations. You are no doubt fundamentally sound and conceptually secure in your approach to this subject.
Are you leaving too much on the table? If yes, take a look at the reasons for this, but don’t allow yourself to fall into the trap of believing you have to meet the competition (a commodity broker mentality). If your clients are paying your invoices, and continue to utilize your services, you are delivering value.
The concepts of quid pro quo and asset transfer are fundamental to the operation of any successful business. However, in order to convince your clients that your transfer fee policy is reasonable, you must learn to incorporate these concepts into your presentation. For those firms who have, the benefits are dramatic, resulting in stronger client relationships and increased profits.
As always, if you have questions or comments about this article or wish to receive my input on any other topic related to this business, just let me know. Your calls and emails are most welcome.
