Ways to increase revenue for your small business for staffing

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hey there fellow entrepreneurs today we're here to talk about a critical aspect of running a successful staffing agency determining your minimum margin your minimum margin is the minimum profit percentage that you should aim for on each contract or each placement is the foundation of a financially sustainable business model throughout this video we'll walk through the various fees that you'll encounter in the Staffing industry and share strategies on how to set reasonable rates it's crucial to strike the right balance between profitability and competitiveness you don't want to price yourself out of a market and miss out on valuable contracts let's dive in and ensure your staffing agency thrives in the competitive landscape that we're in today get ready for actionable strategies and Industry Insight that will transform your business at past Workforce we're dedicated to empowering entrepreneurs just like you we provide expert guidance on starting growing and even selling your companies today's Insight on minimum margins and rate setting are just a taste of what you could gain from our comprehensive mentoring program so stay tuned till the end and we'll share how you can become a member of our exclusive group mentoring program for only 99 a month trust us the value you'll receive is beyond measure in order to run a successful staffing agency it's crucial to have a grasp on the several key factors that impact your profitability and your ability to compete to be clear there are three important considerations to help you navigate these factors and make informed decisions profit margin the true cost of employment and understanding pricing from the perspective of the facility that you're Staffing in [Music] profit margin is the foundation of a financially sustainable business model setting a margin too low can lead to financial instability and hinder your growth as an agency let's talk about the factors that influence profit margins such as the overhead cause of your business competition and market demand by understanding industry standards and conducting a thorough analysis of your cost and desired profit goals you'll be able to determine a good rate that strikes the right balance between your price and being profitable my general rule of thumb when it comes to pricing your rates is to set a 1.5 time profit margin what I mean by that is that if you've done market research and you know that nurses are expecting 50 an hour and I'm just using 50 an hour as an example but they're expecting 50 an hour in wages you should be charging 1.5 times that base rate as your bill rate and that's going to give you a safe cushion to be profitable and be able to provide competitive pay rates now the way that you're going to go about research searching your Market pay rate is just talk to people who are working in the areas that you plan on Staffing in so if you're looking to staff nurses in ICU hospital setting whether it's per diem travels Etc you should be doing market research to collect information to see what are the true seller expectations for people who are working with agencies in the sort of setting that you plan on placing them in once you have that average number and you know what people are willing to accept Mark that up by 1.5 times and that's going to be a safe number to ensure that you're going to make enough money after all of the Hidden costs you also want to align yourself that way because it starts to get way too expensive for the facilities if you go above that now what I see a lot of people do as a rookie mistake is that they think all right if nurses are asking for 50 an hour I'll mark that up by 10 bucks and I'll be making ten dollars an hour per nurse on a full-time basis that's still a 20 000 a year margin is what they're thinking but in reality since they haven't ran a business before they don't know about all the other costs that are associated with that and if you do something like this and you only mark up by let's just say 1.3 1.3 is probably the lowest that you could actually do in order to even squeak out a profit I really don't recommend going down to 1.3 that that is the floor if you go below 1.3 you're almost guaranteeing that you're working for the facility and not really working for your business now when you look at the overall margin in this industry most businesses that are operating in the healthcare staffing space are going to net out this is true net profit around 20 to 30 percent and take home and that's going to obviously depend on how optimized their business is what sort of rates they're charging but the industry standard is roughly between 20 and 30 percent if you look at the financials of publicly traded companies that are in this space or you look at some of the private companies that are for sale you'll see that if you look at the gross revenue and their take home and reported net income and what they're reporting in their sales information or even from personal experience you're gonna end up around that number thirty percent is kind of healthy 20 would be typical considering how most businesses are operating what their overhead expenses are Etc so again just to recap 1.5 is the safe number 1.3 is the floor to accurately determine your pricing structure is essential to have a comprehensive understanding of the true cost of employment let's break down the direct quads including wages benefits and payroll taxes the first time that I ever ran a payroll it was a surprise to me because I didn't know that as an employer you also have to pay into the tax pool those taxes ing to all businesses are Medicare are all the federal contributions so Medicare Social Security federal unemployment tax and then there are taxes on the state level which include State unemployment tax and sometimes down to the city level or even the county level it gets kind of crazy when it comes to what you're expected to pay on employees and that's something that comes to a surprise to new entrepreneurs it definitely was a surprise to me I remember running our first payroll during the calculations expecting what our costs were going to be to only have ADP let us know that we owed more money now you could estimate that those costs are going to be between 14 and about 20 percent of their wages because some of them are wage dependent some of them are continuous throughout how much money they earn so that's going to vary slightly but to play it super safe you might as well kind of Mark off about 20 as additional cost to employ another cost that's going to be associated with wages is going to be workers compensation if you're employing people Most states require mandatory workers compensation and workers compensation rates for this industry can range from between as low as two percent depending on the type of workers that you're placing and what setting they're in to as high as 17 again that's specific to the state specific to their risk profile so if you're paying about 20 in tax mandates and you're going to be paying roughly about four percent just to be average four percent in workers comp that's already either 14 to 24 above your cost to just employ that's being paid out in the mandatories and that doesn't even include the indirect cost so when you're working out your rates that's why I said the 1.5 rule is is pretty good but you need to do that market research to say hey well let's take a look if I was paying 50 an hour and I had additional cost of 20 just for easy math again then my true cost to directly pay one of these workers is 20 above 50 an hour which is sixty dollars so if you were billing sixty dollars already you're at break even and that's not even factoring in the cost of your Capital you have telephones Etc right so that's why it's important to know these things when you're doing your market research and you're starting to apply your markups and and really to get a sense of what your margin is going to be you should be using tools that allow you to forecast your true cost for our members that are in our TurnKey program or in a premium program we provide them with a spreadsheet that's a rate calculation tool and it works kind of two-sided you put in their base rate all the way in the left and then you put in your state mandates so Federal's already calculated in but all the state mandates should be added in as well your cost for Capital should be added there as well if you're using a line of credit or some sort of factor Arrangement and then you have your proposed billing rate in the far right column and that spreadsheet would automatically spit out how profitable you're going to be what is going to be your margin how much you're going to be making per an hour how much you are you going to make on a 40 hour work week how much are you going to make if you employed this person for a year and from there you could determine whether or not those numbers are viable to you I've seen all kinds of rinky things being taught on the internet where just kind of randomly associating cost these are predictable costs that will be easy for you to determine and it'll allow you to accurately get down to the penny so that if you're in a real live negotiation you can plug them into your spreadsheet and know that hey if you take below 72 an hour it starts to get you into murky territory and at least you could you could cut the line there another thing that's really cool about that spreadsheet is that you can negotiate better markets for yourself based upon the base rate that you pay some people think that they have to charge the lowest Bill rate and pay the most you know what ends up happening you get squeezed by doing that once you have your billing rate set with the contract that you have it's also your responsibility to negotiate with the nurse if you have a low point which is maybe the lowest acceptable rate you might want to offer that first see how that negotiation goes they may counter you at below your average rate and let's just say that again using the 50 example you're offering forty four dollars to start market conditions say 50 is okay but people accept the 44. that's a six dollar an hour spread that you've added for yourself just by negotiating with the worker at the same time the worker may turn around and say the least that I'll work for is 53. you could plug that into the spreadsheet see exactly how that's going to affect your bottom line if you're billing 75 an hour and you're paying 53 dollars out you still will make money again the 1.5 rule really gives you some leeway to to maintain profitability while being sensible when it comes to the facility while on the topic of direct costs let's uncover the hidden costs such as recruitment expenses background checks and administrative costs by factoring in both direct to indirect costs associated with hiring and retaining employees you'll have a clearer picture of the true expenses involved understanding these costs will help you set competitive rates that cover your expenses and ensure you make some money now there's some indirect costs that you can control such as your rent such as your number of Staff your ad spend those are things that you can control the things that you can't control are your mandatory insurance cost so workers comp like I said I usually bundle that into the cost of employment but your spreadsheet or whatever tool you're using May kind of factor that apart I associate that with employment because it's directly related to payroll so it's better to bundle that together but you also have general liability insurance you have Professional Insurance you have the cost to host your website all of soft cost are going to essentially affect your overall margin so you're going to need to make sure that you're kind of factoring in your total Personnel cost your total recruitment costs all other expenses that are not related to your cost of goods and services direct cost of goods and services you should try to get a average dollar amount per an hour for that here's what I mean let's just say that your business had a million dollars of expenses and out of that million dollars nine hundred thousand was wages and all the costs associated with wages and the remaining hundred thousand were all your overhead cost and to make that one million dollars you provided um 10 000 hours of service okay if you provided ten thousand hours of service that means that you're spending about ten dollars an hour actually directly ten dollars an hour for every hour of service that you provided because the rest of that went that other ninety dollars per an hour went to the workers and the workers course and the other 10 was to run your business that could be your admin staff wages your ad costs everything else you're going to want to look at that on an annual basis look at the last year and and see okay based on last year's performance how much do we spend per an hour for all our serviced once you know that number you could also start to forecast how you're going to perform in the following year if you were to provide fifteen thousand hours of services with the same overhead now your costs are even lower right you've reduced your overhead cost by fifty percent and now that's a little bit lower it's closer to five dollars an hour or whatever the math equals you're going to want to do those assessments regular early so you know what your true take home is going to be and you can also factor that into your calculations to know that overall if x amount of dollars is no matter if it's a CNA or if it's a physician that you're Staffing x amount of dollars per an hour or for every hour serviced we need this much staff we need this much support for our operations this is how much we're budgeting per an hour of service so that we can run our business so the tip here is definitely know what your cost of goods and services are the acronym for that is cogs costs of goods and services that's the that's a true cost to generate your revenue and then you have all your other overhead expenses if you work with a good accounting team or if you even worked with our partners Healthcare back offices we would do these analysis with you every single month to really break down where you're at make sure that you have the key performance indicators the key metrics for you to be making decisions and know where you stand you don't want to be one of those companies who's just flying by the the seam of your pants and just figuring it out at the end of the year that you didn't make as much money as you thought been there I know what that's like I don't want you to repeat the same mistakes negotiating fair and profitable rates requires that you understand pricing from the perspective of the facility or the provider that you're Staffing with you have to align pricing with their perceived value and benefits that you can provide them you can negotiate rates that are fair profitable and competitive one thing that you need to remember are all the facilities that you're Staffing in they have a budget that they need to stay within and this is something that a lot of people Miss just because they're short staffed doesn't mean that they could just blow money and still turn a profit most of the healthcare facilities nursing homes physician practices are for profit and they have a annual budget and within that annual budget they have their employment cost and they assume some overtime potentially some Agency use and they have a general idea of how much they need to spend on their Workforce to maintain their business and to be profitable if your rates are too high you're going to be the line item that they want to reduce because they're going to be comparing their cost of staff particularly agency staff versus their cost of internal staff and if there's too much of a doubt or too much of a difference they're going to cut the agency out because that's going to make them more profitable especially if they're able to boost their their if they're able to reallocate the money that they're spending on agencies to their direct recruitment costs and if it's less money absolutely they're going to cut the agencies and spend more money on their recruitment efforts to bring down their overall salary expenses if you don't understand that you're going to come in too high and you're not going to be able to negotiate so one of the things that I always advise and something that I do is when talking to the financial people the people who really understand the the financial side of the business I try to get them to talk to me about what is their true cost to employ because usually the people that you're negotiating with they don't know that because they're their employees they just know how much they get paid per an hour they don't know how much the company's investing in paid time off they don't know how much are the union cost they don't know how much the overhead is they have no idea what the true budget is for them as the employee they just know their rate so if you have a director of nursing who's getting paid 75 an hour or 150 000 a year and she's running a skilled nursing facility and she sees the bill rate is also 75 she's gonna be like what they're charging as much as I get paid for a floor nurse no way that's too much and she doesn't even know that the true budget for a floor nurse in her building that might be getting paid forty dollars a hour is 75 now when it's all packaged together so it may actually cost them a hundred fifty thousand dollars a year to hold employ and retain an RN so if your agency Bill rate is the same as their true cost to employ someone regular time it's a win it's a win for everybody you're bringing them staff at their same budgeted cost and if there's enough meat on the bones for you to turn a profit perfect another thing that might be happening is that your bill rate might be equal to the overtime rate of a regular employee now overtime is always an expense that employers don't want but there is going to be a certain amount of overtime kind of built in if you come in at that overtime cost the conversation changes a little bit the conversation then becomes we understand that you're mandating staff and that's going to burn out your staff and potentially cause you to lose even more staff increasing the total amount of overtime you could use our agency as respite as Bridges for overtime it's costing you the same amount but at least you're not burning out your staff and as we get closer to meeting your objectives then we can taper off on the agency side and potentially even work with you on a direct hire basis you need to understand that this is how the CFOs are thinking the CEOs are thinking the board is thinking they're always looking at the spreadsheets and trying to see how can they be more profitable where are they out of line for their budget and how can they Reign it back in by coming in and negotiating from that perspective they're going to understand that you are competent and that you are aligned with them being profitable and meeting the objectives once your rates are out of line with their budgets it's a losing negotiation right only desperation will get you business and as soon as that desperation eases off you're going to be out of the building and that's not what you want you want a long-standing relationship that is beneficial to you as the agency and beneficial to them as a facility because they're ultimately looking to turn a profit and not being direct now that you understand profit margin and the true cost of employment as well as pricing for the perspective of the facilities you're equipped to set reasonable rates that ensure profitability without pricing yourself completely out of the market for further guidance and support we invite you to join our exclusive group mentoring program at passive Workforce our program offers comprehensive guidance on starting growing and selling your staffing agency helping you achieve whatever your long-term success goals are to get an idea on how these sessions are structured go to our website and watch our free webinar where we do a deep dive on rate calculations and answer the questions for those who are in attendance links for that can be found down below and I have them pinned you can also find the link for the group mentoring sessions as well I hope you found this informative I'll see you in the next one take care [Music] thank you