In a recent “Savage Truth” blog posting, I wrote about negotiating perm placement fees. Let’s turn our attention now to the question of negotiating temp Bill rates, and the challenge of maintaining our margins.
In this recessed environment, your clients are going to be screwing you for all they are worth on Bill rates. Sadly, many suppliers in our industry are , out of desperation, rolling over and dropping their rates.
Some mark-ups I am seeing staffing companies offer in Australia, the UK, and elsewhere, are shocking, and suggest a desperation bordering on hysteria. Even in a downturn we must provide our services at a profit. And it can be done.
The “big secret” when it comes to negotiating with clients about temp Bill rates is to shift the clients focus from the RATE – to the COST!
If you allow all the focus to remain only on the $ value of the hourly rate, then you have very little negotiating leverage. The client quotes another agency who will “charge less, for the same job.” If you argue about the hourly rate only, you have nowhere to go, because less $ is less $!
But if you focus on the other part of what the client said, then you have plenty to discuss. I am referring of course to where the client says another agency will charge less “for the same job”. That’s the weak spot to tackle in clients’ argument. Will the client indeed get “the same job” done by the cheaper option?
“NO” is our argument, and it could cost the client plenty.
So for example, let’s say you are suggesting to client that a mid-weight freelance graphic designer is going to cost her $50 per hour. The Clients says “That’s expensive – I can get a graphic designer from your competitor for $45.” You see, the client focuses on the rate only.
Most temp consultants cave in at this point. They reduce the Bill rate to win the assignment. That teaches the client that our rate is negotiable, and it immediately reduces our margin, and that’s bad!
A more appropriate strategy is to focus the client on the comparative COST of the entire project. Get the focus off the hourly rate. How? Well, like this usually works…….
“Ms Client, all our graphic designers have been interviewed, screened and tested for both their skills and their attitudinal fit to do freelance work. In the case of the person I propose to provide you for this role, she has worked for us many times before, and I have many glowing testimonials on the calibre of her output and her initiative and accuracy. Ms Client, the person I will provide you will come in, sit down and start being productive from the first hour. She will make minimal mistakes and the quality of the outcome will make you very happy indeed. What’s more she will do this project within the two-week time frame you need. To get someone of this calibre we need to pay $50 per hour.”
But $50 x 8 hours x 10 days = a total cost to you of $4000.
“If you take the cheaper option Ms Client, you may well pay $45 per hour, but it is most unlikely you will get the calibre of individual and the quality of work I am promising you here today”
“Indeed, your $45 an hour person is likely to take longer to do the job, absorb more of your time, and quite possibly make more mistakes.”
So $45x 8 hours x 15 days = a total cost to you of $5,400
“The so-called ”cheaper” option Ms Client, will cost you far more!”
It’s the quality work done at the best cost that I am offering you, and that’s why I am suggesting my talent at $50 is in your best interests.”
What day can she start?
That’s the way to sell quality temps! Porsche does not compete on price with Hyundai. They are both cars with engines, seats and CD players. But people pay far more for Porsche, because the value is there
Same with our temps. If your client wants a great freelance experience, and the client wants their problems solved quickly and accurately, the price may be a little higher, but the value will be measurably better!
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I ran a very lucrative temp desk for many years before moving into a Management role. One thing that I was taught by a previous Manager and that has remained with me in every price negotiation deal is that if you give 50 cents extra p/h away (to the candidate or client but especially to the client) over a 6 month period, then you may as well redraw $520 (0.50*40*26) from your own bank account and hand that over to your candidate or client. We all know that in reality we only earn a % of that $520 but never the less you are still handing over your own earning potential when you are forced to drive your price down.
Multiply this by the amount by the amount of temp roles that you fill per quarter and calculate what money you have lost. It can be a very empowering exercise and a fantastic motivator to drive your margins north.
Greg, I concur with your comments. Unfortunately, there are many of our competitors who are “cutting the guts” out of the market in increasing desperation. My view is that they simply do not value themsleves, their service, and as such will not translate this to their clients either verbally or through body language. I also suggest this starts at the top as the fish generally rots from the head down. Strategically this is a massive blunder for many reasons too lengthy to go into detail with here. At my company we are not cutting margins despite the pressure, and our margins have held steady throughout. We have also remained extrememly pro-active with our clients, focussing on quality, and while our gross sales have reduced compared to 8 months ago, we have not lost any staff at all, and our company remains in a profitable situation every month. For the record we are a blue collar labour hire company and commenced business in only 18 months ago.
Your content is very interesting, bookmarked
regards khhudf
Good story Greg, I would like to share it with a number of agencies that pitch to us. I’m sure they could learn something useful.
I even had one agency recently justify their charge rate by comparing the price of our equipment! Not sure how you compare a $10M machine with the hourly rate of an admin, but she dared to do it!