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How to Price out temp to hire fees
We’re often asked how one should price out conversion fees (i.e. temp-to-perm hire fees at the end of the assignment). Understand this — there should be no single
way to price a conversion fee. However, by using simple math, it will be easy
for you to determine the best price to charge your client or a search fee, if any, should they want to hire your contractor permanently.
First, you need to figure out what your search fee would have been had you placed them directly as a permanent placement. For example, a $20/hour person would earn $40,000 a year. If your fees are 25%, then you want to start by trying to recoup
that normal $10,000 perm fee via your temp gross margin.
MARGIN IS MARGIN IS MARGIN. Therefore, you might feel comfortable perhaps giving away the temp for free with no conversion fee if you ended up making your $10,000 fee already on margin. Similarly, you might be fine to give away a temp for free if you had a high enough markup/margin percentage that would yield over $10,000 in temp gross margin. Finally, you would want to consider,
let’s say a $2,500 conversion fee should your temp gross margin dollars amount to only $7,500 for the length of the assignment.
Your Search Fees Can Be Baked Into Your Contract Margins!
What’s more, you can also build your permanent hire fees into your contract margin. Let’s use an example where you would have agreed to a $10,000 permanent placement fee. Using a bill-rate example of $45/hour Bill and $30/hour Pay plus burden, you can make the same fee after only 6 months of contract work, including EOR fees!
Since you’d be making a better deal this way, you can place the contractor as a free conversion provided the contractor remains in place for the full 3 months of this assignment, or discount the fees for a shorter timeframe.
You will still be making more money than you would with a permanent one-time placement while strengthening trust with your client, and conveying that you truly have their business needs as your top priority is also important to communicate that you may actually decide to charge a lower total fee (conversion fee plus temp margin) than your standard search fee.
As you would have learned in Staffing by the book, this is because your expected value or placement ratio will be significantly higher than if you went the search only route. As such, you will make more over time by charging less.
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Read all of this and more in our 44 page free ebook, "Staffing By The book"
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