I plan to sell my business in three years. I added a temp division to increase the value of my company. However, my recruiters have been having a difficult time selling against markups that are ridiculously low. Clients will ask us for our markup, tell us what our competitors are offering and if we don’t bid lower, we don’t get their business. If I’m going to sell my business for the highest return, I have to protect my margins. How can we overcome this objection and make these clients more reasonable? I want to dramatically increase my GMP (Gross Margin of Profit) in 2015.
Frank S., Detroit, MI
If you are dealing with clients who view you as a commodity and base their decision 100% on price and don’t consider business value, there is not much you can do to counter this objection. When we are asked our markup we turn the conversation to their budgeted bill rate for each opportunity and explain our markups vary on the level of talent, experience and pay rate we must pay our contractors.
You can also explain that the burden which represents your markup continues to increase due to increased workmen’s comp costs, the Health Care Reform Act and the overall cost of doing business. I find it ridiculous that clients are basically asking what profit you are making. I don’t know any other profession that is asked to share their profit percentages on sales.
Conduct revenue modeling to determine your highest margin business and then focus your marketing and recruiting efforts at that exact business. As the owner you need to review your business model, duration of assignments and possibly consider some of the suggestions below to increase margins.
Low margin sales make you work harder for less money. This is a common issue for many staffing firms, as the industry is becoming more commoditized in many clients’ eyes. This negatively impacts your cash flow and profit margin. Improving your margins is not easy; it may require major change in the way you conduct business.
These three changes are not easy, but will protect your profit margin and increase the value of your company:
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1. Stop doing business with low margin clients.
Some companies will always be price buyers, in much the same way some people will always drive across town to save a penny on a gallon of gasoline. If this is the case, it may be time to walk away. Refocus your sales efforts on companies that value high quality workers and service.
The challenge is to first identify these companies, understand the reasons that they will pay higher margins and then change your marketing message to highlight the value you deliver, the services you offer, the top talent you can provide and what differentiates you from your competition.
2. Focus on staffing higher skilled jobs.
To increase margins, change your mix of business and focus on placing higher skilled jobs. Marketing higher level contract staffing services is different than selling industrial or office support temporary staffing services. This will require you to revise your website, your marketing materials and retrain your recruiting and sales team. When you specialize in a particular niche you will attract higher margin clients and candidates who eventually will know to seek you out.
3. Focus on business value vs. order filling.
When you focus your sales efforts on higher level contractors, you change your message to ROI (return on investment) vs. markup. Develop a message that gets senior executives interest and excited about the value of hiring contractors. Firms that are able to position themselves as true solution providers are able to sell at higher levels and avoid most of the margin pressure that comes out of HR and procurement.
Implementation of these changes will not happen overnight and will require your total commitment. These actions will dramatically increase the value of your firm which will make these changes well worth your efforts.
Barbara J. Bruno, CPC, CTS