Contingent Workforce Pricing Strategies

When it comes to setting prices for contingent labour, S.i. Systems works with clients whose policies run the gamut of restrictiveness and market responsiveness. On one end of the spectrum, you have a classic laissez-faire model where each rate is negotiated directly by the hiring manager. On the other, you see strictly capped bill rates, applied either with or without specified markups for staffing suppliers.

Successful agency partnerships depend on transparency and trust, and a market rate card is an effective tool to generate both. Like other key elements of a strong staffing process, a documented rate card process prescribes how things are done, keeps teams aligned, and is measurable. Let’s take a closer look at this common approach and how to make it work best for your needs.

What is a market rate card?

It’s straightforward: a rate card establishes the all-in billed amount an organization will accept for specific contingent worker roles and responsibilities. For example, for a Business Analyst Level 1, client X is willing to pay $75.00 maximum per hour, inclusive of:

the supplier’s pay rate to the contingent worker
agency markup (covering operating expenses and reasonable profit)
statutory government burden for non-incorporated workers (CPP, EI, workers’ comp, holiday pay, vacation pay)

A great benefit of the market rate card is that it controls the entire cost structure, not only individual components such as pay rate, supplier markup, and burden. Like standardized scorecards, market rate cards boost consistency and level the playing field for suppliers on the front end.

A supply & demand story

An effective market rate card takes into account market availability for specialized talent, weighing relevant data to create an up-to-date set of standard rates by position. It follows that the natural consequence of a supply squeeze for software developers would be an increase in the bill rate. It’s labeled a “market” rate card because it’s meant to be adjusted quarterly or biannually. This helps ensure organizations are paying the right price—market price—for the right contractor at a given time.

Why build a market rate card?

The benefits to implementing a market rate card extend well beyond cost control. Let’s connect the dots to a few positive actions:

1. Identify a consistent job taxonomy

To make hiring decisions at true market rate, it’s critical to benchmark talent against the appropriate skill level. Apples to apples. It requires creating a set of standard defined job titles and roles for all types of contingent workers an organization hires. This is the first and arguably one of the most significant operational benefits of building a market bill rate card.

2. Attract, hire, and retain top talent

Wages are a key ingredient for contractor engagement, and a balanced market rate card ensures that you let supply and demand influence the contingent workforce cost structure appropriately. Market rates ensure you target the complete talent pool for the wages you’ve appropriated for the hire.

3. Encourage competitiveness across staffing suppliers

Maximum bill rates create a fair, competitive playing field for internal recruitment teams and suppliers. All stakeholders are focused on driving the best quality at the allocated market price, so the hiring decision will be based on quality, not the cost of a worker. This doesn’t restrict the ability to send candidates over/under the rate card, but for the most part, you only want to see rates deviate from the market rate about 10% of the time. If more, it could be true your rate is no longer “at market.”

4. Harmonize and self regulate supplier rates

Supplier markups should self-manage under a harmonized market rate. For example, if the bill rate is $100 per hour and supplier A targets a 25% markup, they can pay the worker $80.00 per hour. If supplier B targets a 20% markup, they can pay the worker $83.25. It’s possible that supplier B can attract a more premium candidate with the extra wages. This dynamic helps to self-regulate suppliers from under representing pay rates to increase markups.

5. Create predictability in contingent workforce spend

Assigning ceilings rates to the job taxonomy makes it easier to marry workforce planning and capital requirements. Human Resources teams have done a great job benchmarking full-time employment opportunities; unfortunately, the same cannot be said of contingent labour. By aligning the non-employee workforce to a standard set of job requirements and rates, leaders can create more predictable forecasts for capital costs required to deliver projects.

6. Allow your hiring managers to direct source at market rates

Hiring managers are great at identifying and hiring quality talent through their own networks, but they struggle at times with knowing what to pay the worker. A market rate card allows them to quickly benchmark the norm across the organization to ensure they are offering a fair wage. For direct sourced workers, it’s common this manager has worked with or been referred to these individuals in the past. That proven experience often trumps the desire to have an awkward negotiation. Benchmarked rates support efforts to land great talent at the right price.

Market rate card strategies

Once the benchmarks for market rate cards are in place, you can adjust the deployment strategy. For example, some organizations may choose an aggressive approach, paying below market rate to bring projects in under budget. Others may opt to pay above market rate in the hopes of attracting stronger talent. A smart rate card balances the pros and cons, for a pricing strategy that reflects your reality.

Tracking Rate Card Program KPIs

In any managed rate card program, you should monitor three key performance indicators to ensure your rate card is achieving the desired effect: speed, cost, and quality. Here are our recommended benchmarks:

Speed: Time to hire < 15 Business Days

If your time to hire is beyond 15 business days, it’s likely that your suppliers are challenged to find strong talent at the desired rate benchmark. This usually indicates your rate card is priced too aggressively.

Cost: Compliance to rate card > 90%

If you are achieving 100% compliance to your rate card (among both suppliers and managers), chances are the rate card is priced too high and not anchoring suppliers as designed. You also need to be realistic and provide some leeway for specialized skill sets that are difficult to source. It’s too difficult to document and design a market rate card for any and all skills sets. Create room for exceptions.

Quality: Contractor Attrition Rate < 4%

You need to ensure that your attrition rate doesn’t exceed 4% across all contractors. Low wages are a common theme with contingent worker turnover.

For more explanation on how these metrics work together, check out our blog on staffing scorecard pillars.

Ready to develop a market rate card?

The effort to develop and implement a market rate card strategy is not negligible, but it’s worth the effort. Expect the process to take a few months and to require a change management program for both managers and suppliers.

S.i. Systems is well-practiced at guiding clients through this process, and we’d be happy to outline our approach and outcomes with you. Schedule a consultation today.