‘Temp-to-Perm’ discounts are a farce



Why do we do this in Agency recruitment?

Do we not believe in our value?

Do we not understand the value of a skilled temporary worker?

The client loves our temp or contractor so much they want to hire them permanently. (Temp-to-Perm, Buy-out. Conversion)

Yay, but you get it, right?

We have done our job so well that they want to make it permanent!

Then, many of us give away our Temps at discount rates.

And I mean massive discounts, not a little nod of the head

Sometimes the permanent fee after a year or 18 months is – nothing!!!

FFS!

Why, I have never understood. I know the market is demanding. I appreciate a $ is still a $. I am aware some clients are screwing us where they can.

But it happens in every market, all the time. Some agencies have it embedded in their terms of business!

A Temp or Contractor on your payroll is a precious asset.

I cannot fathom why anyone in our industry would give a substantial discount on the fee when a temporary employee goes permanent.

It’s just so illogical. A temp-to-perm fee is a once-off hit, which is nice when it happens, but we seem to forget that we have lost a tried, tested, and hard-to-replace revenue-earning asset- our Temp worker.

I have heard all the arguments on this from clients, and they don’t wash

Let’s start with the classic “But you really should discount the permanent conversion fee because you have already earned so much margin on the temp”. What hogwash. The temp margin is for the temporary service rendered. The perm fee is for the acquisition of a permanent staff member. There is no leveraging one against the other.

We need to be confident with the client. It is far from a celebration for us when a temp goes perm; in fact, the perm fee is scant compensation for the lost revenue that the temp could have earned on future assignments.

Some clients will even try to use the ‘hire purchase’ argument. “But can’t you see?” they say. “It’s like me renting a TV and then buying it. It’s always cheaper to buy a previously rented TV”.

Sounds neat, but it is fallacious. A TV is a depreciating asset.

In a contract assignment, a human being is trained, absorbing the company culture, and learning the systems, which means they are an appreciating asset.

The perm fee should be more, not less.

And one more thing…

Don’t pro-rata perm fees for long-term contract assignments. That’s dumb. We lose. Keep the distinction between temp and perm crisp and clear. (I know in some countries our hands are legally tied on this, but it’s just about negotiation in many countries.)

If it is a fixed-term assignment, it’s a contract role; therefore, it’s a timesheet hourly rate with our margins on top, or it’s a fixed weekly or monthly rate. Don’t think, “Well, it’s a six-month role, so we will divide our perm fee by two because it’s half a year”.

Do the arithmetic!

A perm fee at 20% for 75,000 placement is $15,000

If a client wants to pay half the perm fee because it’s a six-month gig, then you get $7,500

But the margin you will earn on a $75k level person on a temp basis for six months at a 55% markup is approximately $19,000

$7,500 vs $19,000

You can see why the client likes the idea!

Sure, if the client wants to pay a perm fee instead of a margin for a six-month gig, for example, that’s cool. But it’s the full perm fee. The client will still pay less than the equivalent margin, i.e. $15,000 vs. $19,000.

But you get a full fee, and that’s fair and proper.

(Of course, the client will get cold feet about this when they think about it. “So if I pay the perm fee, the person is on our payroll?” YES. “Aha, but that’s a hassle”. YES. “And then if they leave after 8 months, you will replace them?” NO. “But I want that reassurance?” COOL > PUT THEM ON TIMESHEETS. Bang. The value of Temp starts to become more evident!

If you are not convinced, think about this. If you owned an investment property and rented it for five years to a lovely young couple, and then they wanted to buy it from you, would you give them a 25% discount off the sale price because of the rent they had previously paid? I don’t think so. So why do you give your temps away cheap?

Believe me on this. We have NOTHING else to sell besides our service and talent skills.

Believe in the value you bring

Don’t give away the farm.

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Action Steps

Run an internal session on the cost of a Temp and our real value

Train your recruiters to push back on T2P fees

Revamp your terms of business with clear guidance on T2P

Walk away from clients who demand free or almost free conversions

Subscribe to the Savage Recruitment Academy, which has all this and much more.

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