Bill Rate Calculator - How Does A Staffing Agency Make Money?

Published on 9/13/2022 by David Webb
Last Updated on 11/28/2022

Categories: Staffing Agency Software

Tags: recruitment software freestaffing agencies

BrightMove has developed a tool that helps sales representatives within staffing agencies to estimate how much money they could make through contractual placement. We call it the Ultimate Staffing Calculator.  It will also tell you your funding needs and profit margin as a function of time based on the terms of the placement.  The BLS (US. Bureau of Labor Statistics) produces wage data by area and occupation for workers in the United States.  This is a great free resource to determine market rates across the nation.  Using this bill rate and pay rate calculator and some free data from the BLS, you can determine what hourly wage you should charge for a specific occupation.  

Why Do You Want A Bill Rate and Pay Rate Calculator?

It's not obvious why a staffing agency would want a bill rate and pay rate calculator.  To understand why, you first need to understand how staffing agencies make money.  A staffing agency makes money through the spread.  The spread is industry jargon that refers to the net profit on a job.  In other words, it is the difference between the fully loaded bill rate (the amount charged to the customer) and the pay rate (the amount paid to the placed employee or contract resource).  A bill rate and pay rate calculator can provide you with an estimated job profitability based on the spread.  It's important to remember to fully load both bill rates and pay rates when using a bill rate and pay rate calculator.  Otherwise your estimated spread could be inaccurate.  It's not uncommon for the estimated spread to be higher than actual.  This means your actual job profitability could be lower than you estimate, which could get you in trouble with the branch manager, or even worse...the CFO!

To use a bill rate and pay rate calculator, it's pretty simple.  Just determine and enter your estimated values.

First, Determine The Hourly Pay Rate

You can use the BLS data and the BrightMove staffing agency bill rate calculator to find out what your hourly rate would be for any job. Simply lookup by education level and years of experience, then enter this information into the Pay Rate field of the Ultimate Staffing Calculator.

Second, Determine Your Markup Rate

This is where your sales skills will come into play.  The markup is the percentage you or your organization sets that is based on the value you are bringing through finding the best candidate for the role.  This markup can vary from staffing agency to staffing agency and region to region.  If you know what your market will tolerate from a markup standpoint, enter it into the Markup Percentage field.  Otherwise, you could start with a recommended amount of 110%.

Then, View The Calculated Bill Rate and Estimated Spread

The bill rate is the amount you will charge your client for every hour your applicant works, based on the contractual agreement you put in place with the client.  The calculated spread is the profit based on the contractual bill rate with the client.

Finally, Mind The Gap - Don't Forget the Other Fees

There are several other typical areas that can erode away the profitability of a contractual placement.  These other areas produce fees that add up and can result in less money in your pocket.  Or worse, a placement going from being profitable to unprofitable if you don't "mind the gap".  In fact, it is due to this very reason that the BrightMove software was originally created.  These fees are:

  • Burden % - These are fees like employment taxes, recruiter fees, benefits and other administrative costs
  • Interest Rate % - If your funding isn't backed by cash, you'll need to take into account the fees to barrow money.  Factoring companies can make a fortune with high interest rate loans by factoring invoices from staffing companies.
  • Weeks to Payment - How long until you get paid based on the terms of your contract.  Typically, customers want to pay over 30, 45, 60 day terms.  Sometimes these terms are longer and will require you to barrow money.
  • Placement Length - How long will the applicant be engaged in the contract.  The bill rate and pay rate calculator will tell you how long it will be until you break even.
  • Commission Cap % - Does your commission cap out at a maximum percentage?  If so, this is the field to set that amount within the bill rate and pay rate calculator.

Payroll Funding for Staffing Companies Is Critical For Success

Once the contract is in place and the candidate goes to work, payroll funding for staffing companies is the next major factor that will impact profitability.  Yes, you made the sale.  Congratulations!  Now the staffing company must bridge the cost of the candidate's payroll until payment is received from the client.  Sometimes this is 30 days, sometimes longer.  As part of your contract and likely within the master services agreement you have with your client, the payment terms should be defined.  You must be sure to factor the cost of payroll funding for staffing companies into your business plan.  If your organization has enough capital available to self-fund payroll, that's usually best.  In many cases, payroll funding for staffing companies is done through an internal or external line of credit or by factoring the accounts receivables and invoices.  Whether you are funding payroll through internal capital or by way of other capital, you should consider the cost of borrowing that money in your plan.  The Ultimate Staffing Calculator provides a quick & free way to understand your the payroll funding needed for your staffing company.  Simply enter the interest rate you expect to pay to barrow the capital and the number of weeks until you think you'll be paid by your client,  Viola!  The payroll funding needs are estimated for you!

Find Out How Much You Should Be Charging Using the Bill Rate and Pay Rate Calculator.

Do you know how much you should charge for a job? Our bill rate calculator will show you how much you should be charging per hour.

About BrightMove

BrightMove is the perfect ATS for staffing agencies of all types and sizes. Whether you are an executive and retained search firm, permanent placement agency, or responsible for contingent staffing, BrightMove will meet your needs and exceed your expectations.  BrightMove was created for recruiters, by recruiters. BrightMove for Staffing is software for hiring employees and contractors. It is cost-effective employment agency software that is streamlined for your business. It can be customized to fit your recruitment process, so you can find the right candidate the first time. No workarounds required.

For more information on BrightMove for Staffing, please schedule a demo with one of our customer success specialists.

About the Author, David Webb

David is the CEO of BrightMove and is a seasoned technology executive & entrepreneur noted for creating successful businesses. Over his 25+ year career, David has developed multi-platform expertise in the domains of computer science, data analytics & business transformation. Starting in 1995, David worked with his best friend, Jimmy Hurff, to develop one of the world's first Internet job board and resume bank applications. David is the primary architect of BrightMove and has an active role in the product's evolution to this day. From then to now, David has been consistently helping his customers to build great teams, using best practices and world-class technology.

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