What Are the Real Costs of Working with a Staffing Agency?

Have you ever sat down and calculated what you are paying that staffing agency or recruiter that found your latest contract? I'll bet it is more than you think.

That is, if you can even get the gross bill rate that the staffing firm is billing you out at. Many times that is kept like a state secret, so that the contractor that is out working at the client site (or doing the work from home) has no idea how much the client is really being charged for their services.

In the technology sector, the going rate that staffing agencies and recruiters charge is typically in the 25-35% range with some going as high as 50%.

Do you think that sounds a little extreme? I'd love to hear your thoughts in the comments below.

If you are lucky, you may be able to negotiate that down to 20%, and for extensions to a contract they will sometimes be willing to go lower. I was able to get their cut as low as 15% in one instance, but that seemed to have soured the relationship from the recruiters perspective and I never again heard from them for additional contract work.

Those rates are outrageous in my book, especially when the ongoing costs, once they have placed you onto the contract at the client site are negligible. There should be a cap and once they have recovered their costs and made a reasonable profit, then the rate going to the contractor should bounce up to 90 or 95% of the bill rate that is being charged to the client or even 100% of the net after any nominal expenses that are incurred by the staffing firm.

At that point in the relationship, the work product of the contractor is what is enhancing and extending that relationship with the client, not any kind of "free" lunches or other perks offered by the staffing company, that in reality is just coming off the top of the bill rate for the contractor anyhow.

If you were to compare that 25-35% or more that the staffing firms charge to say a Hollywood actor, where they pay their agents 10% or less, or to the NFL where the league contract prevents agents charging more than 3%, you would be as flabbergasted as I am.

If the staffing agency or recruiter had some kind of ongoing costs, like benefits to you or payroll taxes, that would be a different story, but in a 1099 corp-to-corp situation, they are just lining their pockets on your hard work and something needs to change. And even if the case where the contractor is working on a W-2 hourly employee of the staffing firm basis, the overhead charges to the bill rate are still in the 25-35% range (or more) above those payroll costs.

I'm not saying that staffing firms don't provide a service, they certainly do, and I'm not saying that they shouldn't get compensated for that service, as everyone deserves to be compensated for their efforts.

What I am saying though is that you need to be aware of how much you are really paying for that service and asking yourself if you are really getting your money's worth or if maybe there is a better way or a more equitable solution?

The compensation that you are paying to the staffing firms/recruiters should be reasonable and commensurate with the services provided, and the 25-50% of ongoing revenue generated by the ongoing work of the contractor seems quite unreasonable to me. Maybe some kind of cap, or graduated percentage where the recruiters cut shrinks over time?

What do you think? Maybe you work for a staffing firm or are a recruiter. What is your perspective?