Top 10 Factors in Pricing of IT Staffing Services

About The Author

Tracy GardnerTracy Gardner Global Chief Marketing Officer
LinkedIn|5 Jan 2022

Hiring IT staffing services is a great choice for businesses in today's competitive world. Even, it's predicted that United State tech staffing market size may grow USD 58.31 billion by 2028, as shown in below graph:

United State tech staffing market size

IT staffing services come at an expansive cost to make the lives of companies hiring IT employees easy. However, there are multiple factors behind the high-priced services of the staffing firms. Several consultants and contractors often wonder why they get paid less than the actual bill rate and why the IT staffing companies take a big chunk of their payment.  

With the complexity of quoting prices and paying wages, IT staffing agencies also require an excellent strategy base to deliver their services effectively. Today, we will help you find answers to all your queries about IT staffing pricing by elaborating on the factors determining the cost of IT staffing.  

Factors of Pricing for IT Staffing Services 

Multiple factors are considered before quoting the prices of an IT staffing company that takes these prices over the odds. The top 10 characteristics are:   

Factor #1 - Higher prices of the contractors

The contractors demand increased pay compared to the full-time IT workers to cover the uncertainty in their job roles. There is little guarantee of getting next-to-next jobs and reduced job benefits and security. As a result, the IT staffing firms have to pay a higher amount to these workers than the average per-hour rate of the full-time workers.   

Factor #2 - Mandatory payroll costs

The IT staffing firms pay a direct payroll cost on every payroll. It does not include the overhead expenses like payroll vendor costs, payroll processing costs, and benefit costs. Further, payroll taxes like state, local, and social security taxes account for almost 12 to 15% of the wage amount.   

Factor #3 - Additional benefit costs

The IT staffing firms provide several benefits to their workers, like healthcare benefits, educational reimbursements, life insurance, paid sick leaves, and assistance programs, which add to the expenses of the firm. These benefits costs take up almost 8% to 10% of the wages.   

Factor #4 - Unexpected lost opportunities

The IT staffing company spends money to find a suitable contractor for every job requirement they get. Some of these openings still need to be fulfilled or later denied by the company without necessary charges paid. Only 5% to 30% of the job requirements get converted into contractors being hired and paid. Thus, the expenses borne by the IT staffing firm on the lost opportunities get equated in the successful deals only.  

Factor #5 - Internal staffing expenses

Extensive internal staffing is required to run an IT staffing firm. Companies need account managers and recruiters who are efficient in the sales department. The mix of technology and sales skills is in high demand, making recruiting these professionals expensive. Thus, a large part of the firm's profits goes into clearing charges of the internal staff.   

Factor #6 - Team involvement

The firm requires a functional team to fill the openings and send effective job offers. Starting from taking orders to providing a suitable candidate involves several people working at the back end. Multiple dedicated team meetings are conducted to discuss the allotted projects and find solutions. Different managers charging sizable sums also supervise the work quality. Thus, the team charges a heavy sum for their services, adding to the total operational cost.  

Below the graphs of executives vs. non-executives costs per hire:

executives vs. non-executives costs per hire 

Factor #7 - Operational cost

There are myriad operational costs involved in keeping the company running. These include the cost of rent, software, computer systems, licenses, training courses, financing, insurance, accounting, etc. Besides this, firms make investments in advertisements to hire professional developers. Together, all these costs make up for a large sum that requires settlement in the payment received from the client.   

Factor #8 - Timely financing costs

There is a wide gap between the payment cycle of the client and the payouts of the contractors. Different organizations work on varied terms of payments, which can extend from 30 days to 90 days or even more. However, the contractors need funds in short time frames that, create the need for financing the business. It is an essential factor that frequently gets overlooked while analyzing the operational cost of IT staffing firms.   

Factor #9 - Payment failure

Another crucial factor to consider while calculating the financial setup of an IT staffing service in California is the payment default. The client companies might not pay the due amount or make partial payments due to several factors. However, the IT staffing firm commits 100% payment security to its contractors, putting them at risk. In times of payment default, it becomes a liability for the firm to pay its contractors and suffer losses.  

Factor #10 - Guarantees and legal risk

IT staffing companies mostly have warranties for the services they provide. However, the contractors are provided with a complete payment for their services, putting the company at risk. Further, there are also legal risks faced by an IT staffing corporation for which they might require a legal settlement.  

Also Learn: Mistakes you need to avoid when choosing the right IT staffing firm. 

Trends in IT Staffing Service 

Trends in IT Staffing Service

Corporates no longer work traditionally with CVs, writing assessments, and long-hour interviews. Employers seek qualities beyond the conventional job role in their employees, like being effective communicators, innovative strategists, and tech-savvy individuals. With this in mind, some trends in the IT staffing service include:  

Millennial influence: There are alterations in the work environment since a massive chunk of the working population has millennials. These employees seek transparency, flexibility, creativity, and innovation in the workspaces. Businesses aim to fulfill these core expectations to make the working environment more friendly.  

Remote work: The pandemic altered the way offices run. After seeing the effectiveness of working remotely, several organizations have shifted to a hybrid model or a 100% remote mode. It helps to enhance the efficiency of their operations and cut down on their operational expenses.  

Also Learn: How can IT staff augmentation drive your business to success 

Internal talent mobility: Companies have begun training their existing personnel to perform multiple jobs at once instead of hiring new employees. It helps by upskilling the employees and reducing the recruitment costs and effort of the companies.  

Key Strategies in Pricing IT Staffing Services 

Factors of Pricing for IT Staffing Services

It is essential to have a policy for pricing the IT services for effective pricing of IT staffing in Virginia. Some of the best strategies are:  

Know the competition: To have a stronghold in the market, every company must know the firm they are competing against in the industry. Thus, have an idea of the rates of the competitive IT staffing firms to provide services at the best prices.  

Client relationships: Before quoting a price to any client, it is essential to analyze the term relationship with them. Charge some long-term clients lower than the one-time clients to keep your firm as a lucrative option for them in the long run. Further, it is integral to build healthy client relationships for promoting the business with a word-of-mouth technique.  

Steady calculation: Before quoting the price, consider the pay rate, markup, and bill rate. The bill rate must add the wage paid to the contractor and the overhead expense incurred by the firm in the operations.  

Also Learn: Top recruitment automation tools to hire the right candidate without any hassle.  

How Much Does IT Staffing Costs? 

The usual investment required to launch a staffing agency is between $3,000 and $250,000. The price might vary significantly depending on your location, size, and whether you need an office. The amount and speed of your startup rely on how much you wish to outsource. 

Also Learn: how to outsource iOS app development company 

For the majority of new staffing owners, we typically see three key areas of startup costs: 

DIY, $3–10K: In this category, business owners often invest a few thousand dollars to launch their enterprise. They are assembling the parts on a tight budget without a lot of outsourcing, so it takes a lot of hand labor. 

Hands-on but with assistance $11-34K: In this case, the new owners are still actively involved in setting up the company, but they will presumably hire a professional to do so. The majority of their back office duties, including invoicing and payroll processing, are outsourced. 

Outsource Everything: $35–250K: In this case, the new owner will outsource as much as they can in order to set up the company fast and free up their time to concentrate on development. 

The types of costs you will have to take into account are: 

  • Office space/ rent 
  • Equipment and supplies 
  • Insurance 
  • Legal setup expenses (entity foundation, contracts, etc.) 
  • Website development and setup 
  • Software solutions such as payroll, HR, training, etc. 
  • Employee and freelancer costs 
  • Advertising and marketing 

Hire IT Staff augmentation services with VLink! 

For finding the best IT or Tech professionals to help you upscale your business and stand up to date in the industry, contact VLink. We believe in serving our clients to accomplish their goals with excellent solutions. We offer extraordinary IT staff augmentation services to help our clients develop clean solutions in complex IT environments by sourcing tech talent on demand.  

Our adaptability and scalability make us the top priority of most companies, and we never fail to deliver. We engineer outstanding solutions based on our customer's requirements to add value to their business.  

Frequently Asked Questions
How DO Staffing Agencies Make Money?

Staffing agencies make money by charging clients (employers) a fee for finding and placing qualified candidates into job positions. They typically charge a percentage of the hired candidate's salary or an agreed-upon price, generating revenue from successful job placements. 

What are Additional Elements of IT Staffing?

Additional elements of IT staffing include assessing technical skills and qualifications, conducting background checks and reference checks, managing payroll and benefits administration for temporary employees, providing onboarding and training support, and staying updated on industry trends to meet clients' evolving IT workforce needs effectively. 

What are the Operational Costs of Staffing Services?

Operational costs to monitor when pricing staffing services include salaries for recruiters, office rent, technology and software expenses, advertising and marketing costs, insurance, legal fees, and administrative overhead. Accurate cost analysis is crucial for setting competitive and sustainable pricing.

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