One of the frustrating things about working for a public staffing company is the metrics behind your billing rate.
Gross Profit Margin is the name its given in most places, and it's the percentage of the billing rate that the staffing company collects as profit after paying the contractor's salary, taxes, Social Security, Medicare, Insurance, and Expenses, but before commissions are paid out to the recruiter and salesperson.
Gross Profit Margin is a loathsome master, because it prevents you from taking into account the individual worth of a contractor, and instead focuses on percentages, reducing each contractor to a number.
When you're working for a firm that totals in the hundreds of millions of dollars, some measure is required to keep profits in line. But is GPM the right measure?
Observe: A subcorp contractor you pay $70 an hour to with a 5% burden has a $15 profit. Your bill rate is $88.50, and your GPM is 16.9%. If the contractor works 2000 hours for you in a year, the net profit to the company is $30,000.
A help desk tech that you bill at $20 an hour, makes $12.70, and has a $2.20 burden on W-2, yields you a GPM of 25%. Your net profit is $5 an hour, or $10,000 a year, which means you have to employ three of them to match the value of one contractor.
So given the choice, which would you prefer? As a recruiter, or a salesperson, or even a branch manager, you want the single contractor at $15 an hour. You get paid on profit, so it makes sense to maximize profit and limit work. Help Desk Techs move around a lot, and when laid off, they claim unemployment, so in terms of actual work, it's usually far better to lock in the single, valuable employee.
To a regional manager or group president, the help desk techs are the right choice. Bonuses are paid on maintaining Gross Profit Margin, and considering the first contractor is at 16.9%, and has a big bill rate, your average will be impacted in a way that might cost you your bonus.
Basically, the GPM is this case is driving a wedge between the incentives of the line recruiter and the incentives of the regional manager. Failing to align incentives correctly is one major reason that talented recruiters split off to start their own firms.
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