We are participating in a slow and sustained recovery as our economy rebuilds from the dramatic downturn of the “Great Recession.” Most search and staffing firms are reporting increased revenues and profits. In addition the demographic realities indicate that qualified workers will remain in short supply for years to come. The future looks promising. With this as a backdrop, why is it that many firms in our industry are increasingly feeling a downward pressure on their fees and bill rates?
Economics 101 tells us: When demand is high and supply is short, prices should increase.
However, many in our industry are experiencing just the opposite. The reason for this is another economic law that supersedes the law of Supply and Demand. This law is “If You Can’t Supply … You Can’t Demand”: When demand is high and supply is inconsistent, of poor quality, or if supply has been commoditized, there will be a downward pressure on prices.
Basically, clients are not willing to pay full fees and/or top margins for questionable, inconsistent, or commoditized value (commoditized value defined as a lack of qualitative differentiation among suppliers). Add to this equation the widespread use of the Internet by clients to find candidates, many of whom are the same as those presented by their staffing vendors, and the issue becomes clearer. See my recent article, “Beware of the Low Hanging Fruit” for more perspective on how our industry is becoming increasingly commoditized.
Staffing firms that continue to demand and receive full fees and top margins deliver to their clients consistent value. The cost of their services is viewed by the client as an investment versus merely an expense. The staffing firm maintains a strong order to fill ratio and within this process, their presentation to interview ratios are extremely tight.
Their consistent performance has positioned them as “straight talking providers of real life solutions”; solutions which improve the performance capacity of their client’s organization; solutions which bring real, measurable value. The value of what they do is based on the quality of the candidates hired and/or temporary, contractors assigned. These firms rise above the national norm.
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Bottom line, if you can’t supply your clients with valuable employees in a timely, efficient, and effective manner; you can’t demand (justify) full fees and top margins.
The value of your service is defined by those who pay for it, your clients. If you are feeling pressure on your pricing, check to see if you are supplying the value that demands top fees and /or margins.
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.