… Smarter Hiring Placements

Copyright 2006 Staffing For SmartiesCopyright 2006 Staffing For Smarties

SmartPlace

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Abandon your thought processes about staffing.

Ignore traditional methods of contract negotiation for staffing.

We are going to shake up your thoughts about how staffing works.

Get ready for smarter hiring placements…

Because…

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artiesMARKUP DOESN’T

MEASURE HOW MUCH YOU SPEND…

PRICE IS INTERESTING… BUT DOESN’T MATTER

COST IS KEY

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Why do we say that “cost is key” and that price doesn’t matter?

Suppose we sent you to “LowPrices” to buy a mans’ white dress shirt and you spent $15. That’s the price, right?

Now, suppose we sent you to “HighPrices” to buy a mans’ white dress shirt and you spent $40. That’s the price, right? So, the price was $15 for one and $40 for the other: which was the better deal?

Now: what if you wore both shirts the same number of times during the year, but you had to buy 2 additional “LowPrices” shirts during the year, due to quality issues, while the “HighPrices” shirt had no quality issues. Now which was the better deal?

The PRICE was $15 for the “LowPrices” shirt but the COST was $45. The HIGHER PRICED shirt ($40) actually COST LESS and was the better deal. Price didn’t matter.

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The same theory holds true in staffing as in shirts.

Please keep that in mind as you go through this

presentation.

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What we are about to share with you comes from a true

story. It happened on a visit to a large, national company

that had about 600 contingent workers (“temps”) at 13

locations across America…

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We asked their top HR Manager, “What’s your internal turnover

rate?” (It was low.)

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We responded, “No, it’s not! It’s costing YOU real dollars. LOTS of them!”

Then we asked, “ What’s your ‘temp’ turnover rate?”

“I don’t care about “temp” turnover: that’s the staffing company’s problem!”

The HR Manager didn’t know, and wasn’t too interested, stating:

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arties…now, this wasn’t some novice who

didn’t understand HR matters.

This was a very sharp man who is a credentialed SPHR and is good at

what he does!

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We pulled out a pen and paper and showed this HR Manager how the math works…..

If he didn’t know this, you may not know this either….and it is costing you $$$$.

Before, we get started, let’s dissect a bill rate, so we are all using the same terms.

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artiesHere’s our terminology:

Markup is the percentage by which a pay rate is multiplied, in order to determine the bill rate.

Margin is the part of a bill rate that is left when you subtract out the pay rate and the burden (or “fringe”) on that pay rate. Margin also contains the “profit” but the bulk of the margin is used to source/recruit, interview, test, and reference/drug check candidates to make good placements.

Profit is the portion of margin that is left after all the placement costs are covered.

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TOTALBILL RATE

MARGIN (INCLUDES COSTS OF RECRUITING,

INTERVIEWING, TESTING, REFERENCE CHECKING, ETC.)

PROFIT (from which all other overhead is paid)

BURDEN (OR “FRINGE”)(matching taxes, workers comp & other insurances, & benefits)

PAYRATE

ANATOMY OF A BILL RATE

MARKUP

Here is what that looks like, graphically

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Contract negotiators think they are doing a great job when they negotiate a low markup for staffing.

That isn’t necessarily true: even though the “markup” becomes very low, the pay rate is unchanged, the burden (or fringe) stays the same, and the only money impacted by the low markup is the money needed to do all the important qualifying work to make placements that stick.

Profit may shrink a little, but nobody is going to work for free…..so quality is what suffers.

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TOTALBILL RATE

When markup goes too low (as in the example below) you can see that the ONLY thing that can

be reduced is margin, which pays for good hiring practices!

MARGIN (reduced)

PROFIT (from which all other overhead is paid)

BURDEN

PAYRATE

ReducedMARKUP

Missing Margin(needed to make quality placements)

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MARGIN (reduced)

PROFIT (from which all other overhead is paid)

BURDEN

PAYRATE

ReducedMARKUP

Missing Margin(needed to make quality placements)

When hiring practices suffer, turnover goes up. It’s a simple formula:

Quality Down=Turnover Up

TOTALBILL RATE

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Let’s do the math.

Let’s say you need 5 temp-to-hire jobs filled each quarter of the year: 20 jobs per year.

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The people stay “temp” for the first 90 days they work at your location.

Then you can hire them.

(That’s your goal –right?)

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arties•Training costs are not considered

•How many hours and weeks do you spend training each new person? •What work doesn’t get done in order to accomplish the training?

•Loss of productivity is not considered•Do you need 5 untrained people to do the tasks that 3 or 4 trained people could do?•What does it cost you to have “abandoned calls” or unreturned customer contacts?

•Scrap/waste loss is not considered•What is your raw material cost and how much of it is ruined by mistakes?•How much are you paying for rework?•Do you lose business when mistakes are made?

The costs we will be discussing do NOT include any related turnover costs:

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What other related costs are not considered in this discussion? Your internal turnover costs are not included.

YOUR employees do not distinguish between “internal” and “external” turnover and when they see turnover, it de-motivates them. There is a positive correlation between staffing turnover rates and your internal turnover rates. This is a negative impact to you, financially.

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OK. Now the actual turnover math.

$10 is an easy number to use for this math and this $10 represents the “margin” …which is the amount you stop paying when you hire, after the initial 90-day temp-to-hire period.

Let’s say that it costs you $10 per day per “temp” – over and above the wages and burden.

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artiesAt the start of a temp-to-hire period, you

anticipate paying the bill rate times the days in the temp-to-hire period. So, if you knew that you would pay $10 a day for 90 days, then you would believe the hiring cost to be $900.

Let’s see how that works…

But when turnover occurs, you end up paying WAY more than you bargained for because each “replacement temp” starts the temp-to-hire period over from day 1!

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Below, we are showing the turnover in only one of your positions during the 90-day “temp to hire” period.

Here is how you “read” this:

The first “temp” stays 31 days and then leaves, costing you The first “temp” stays 31 days and then leaves, costing you $310 – and you now have an empty job.$310 – and you now have an empty job.

Each time a “temp” leaves, the 90 day temp-to-hire period starts over.

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Below, we are showing the turnover in only one of your positions during the 90-day “temp to hire” period.

The staffing company replaces that person with another another “temp” who stays only 3 days, at a cost of $30 more. And “temp” who stays only 3 days, at a cost of $30 more. And you have spent $340 and you have an empty job.you have spent $340 and you have an empty job.

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The 3The 3rdrd person works 75 days (another $750 out of your person works 75 days (another $750 out of your pocket!) before leavingpocket!) before leaving and you finally hire the 4you finally hire the 4thth person at person at the $900 you expected to pay when you started the process.the $900 you expected to pay when you started the process.

Below, we are showing the turnover in only one of your positions during the 90-day “temp to hire” period.

See how turnover isn’t the “staffing company’s problem”?

You wasted $1,090 because of the temp turnover. You spent more on turnover than on hiring, in this example showing 300% turnover.

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Your 2nd position fared even worse at the same turnover rate, because of the number of days the temps worked, prior to leaving:

Because each person worked between 22-60 days before leaving, your turnover costs escalated.

You paid $1,270 in turnover costs for this hire.

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Your 2nd position fared even worse at the same turnover rate, because of the number of days the temps worked, prior to leaving:

Because each person worked between 22-60 days before leaving, your turnover costs escalated.

So far, adding together the $1,090 in turnover costs you paid for position #1 and the $1,270 you are paying for this position, you’ve paid $2,360 in turnover costs to hire: that’s 31% more in turnover costs than in hiring costs!

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arties…. you got a lucky break on your 3rd

position as the turnover rate went down:

Unfortunately, you still spent $1,030 in turnover costs: more than you spent to hire…

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Things looked even better on the 4th position, because it only took TWO people to get to the point of hiring. Until you looked at the numbers.

So far, “temp turnover” (which our SPHR stated “is the staffing company’s problem”) has cost your company $4,190.

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Things looked even better on the 4th position, because it only took TWO people to get to the point of hiring. Until you looked at the numbers.

You paid more in turnover costs than in hiring costs! And, depending upon how many days each temp worked, it might cost far more!

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DON’T FORGET: THESE COSTS DO NOT INCLUDE ANY OF THE RELATED TURNOVER COSTS WE DISCUSSED

EARLIER.

THESE ARE CONSERVATIVE COSTS! Your REAL costs are

probably MUCH higher.

AND…

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artiesHere’s an interesting point:

In our example, the staffing provider has made more money on turnover costs than they made placing people into the company.

Where is their incentive to make good placements?

(They’ll lose money if they do a good job.)

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artiesWe mentioned earlier that you had

about 20 temp-to-hires per year…..so at the rate of turnover and cost that we portrayed, you can expect to waste

more than $20,000 on “temp turnover” each year. For only 20 hires.

And this doesn’t account for all those other costs we talked about earlier.

WHAT IF YOU NEEDED 100 PER YEAR?

Can you afford to waste $100,000?

WHAT IF YOU NEEDED 500 PER YEAR?

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Still think “temp turnover” isn’t your problem?

NEITHER DO WE.

That’s why we SmartPlace…

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We GUARANTEE that you will only pay ONE temp-to-hire amount for each position!

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When was the last time THAT was offered to you? There’s probably a reason you haven’t heard it lately…

It doesn’t matter if someone leaves during that time: the replacement will start at

the next hour of that temp-to-hire period.

When you SmartPlace, if we experience turnover, WE – not you -

absorb the cost!

We will LOSE money unless we do a good job!

(They’ll lose money if they do a good job.)

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artiesIf what we have discussed in this presentation has

interested you; if you’d like to learn more about what we do and why we do it; if you’d like to increase your bottom line….please call us.

The person explaining this to you today is someone you can trust to do a good job for

you and make placements that last!

Thanks for your time.

And….if you’d like a further breakdown on why cost is key, please continue…

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Breaking Down the Service Rate Service Rates (bill rates) are composed of 3 things:

       The pay rate

        The burden on the pay (matching taxes, workers compensation insurance, benefits, etc.)

        The margin (the money used to pay expenses of recruiting, interviewing, testing, and the profit)

 EXAMPLE

Service Rate = $16.50

Pay Rate = $10.00

Burden on the pay (19%) = $ 1.90

The margin = $ 4.60

3% = .138/hour

Profit is a very small % of Margin (3-5%) 5% = .230/hour

Of the margin, only about 3% - 5% (if you are doing everything RIGHT) is profit. The rest is money that is used in recruitment, interviewing and processing of applicants, testing, etc.

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   •Do you ask the Dentist how he arrived at his bill rate?

“OK – so that syringe cost what? $1.89? And the novacaine was about $1.00? So if your cost is $2.89 why are you charging $35.00?” (you WISH it was only $35.00!)

•Would you go into Nordstroms, look at a suit for $300 and then tell them that another store has suits for $100 less and that you will only pay THEM $200? Might that embarrass you to do?

Let’s Talk About Mark-up

•Would you ask your Doctor what her markup is?

•Does WalMart scan items at markup?

“ Wait – those socks said 143% - THAT’S TOO MUCH” (would you EVER say THAT?) OR “Hey – that milk scanned at 93%!”

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…SO WHY ASK A STAFFING COMPANY WHAT THEIR MARKUP IS?

WHY TRY TO DISSECT THEIR MARKUP AND FIGURE OUT HOW MUCH IT

SHOULD BE?

BECAUSE, REMEMBER, PRICE DOESN’T MATTER AND MARKUP IS USED TO DETERMINE PRICE.

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artiesMyth: You pay a markup for the

person; therefore, markup should be the same between one company and another. 

Truth: You don’t pay for the person. You pay for the expertise of the company in sourcing the correct person; with skills that fit your job; for the right fit. Just like you pay for the knowledge and the expertise of a lawyer, a doctor or a dentist.

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So…… How do you negotiate staffing pricing?

You don’t. Because we’re not thinking about staffing PRICING…

You negotiate the cost because we’re all about “staffing costing.”

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Focusing on COST shifts the turnover burden firmly into the staffing provider’s arena.

The best way to negotiate a staffing arrangement is to determine a price per hire and multiply that by the number of positions you need to fill.

When you SmartPlace, expect to pay a higher markup (price) than you are accustomed to paying but to receive a lower COST (remember the shirts?).

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NOW YOU SEE WHY WE CALL IT

SmartPlace