effective rate strategies for vms

© PeopleFluent 2014

Effective Rate Strategies for VMS

Cheryl TraczDirector, VMS Strategic Services

2 of 26 © 2014 PeopleFluent | Confidential Effective Rate Strategies for VMS| April 2, 2015

Introduction

• Director, VMS Strategic Services PeopleFluent

• Specializing in driving client satisfaction and value recognition for VMS customers

• 13 years experience in Human Capital Management industry

Cheryl Tracz


• Leader in Human Capital Management• In over 5,200 organizations• 214 countries and territories• 80% of the Fortune 100• 170 VMS customers• $7B managed spend

About PeopleFluent


• Components of staffing vendor bill rates• Approaches to vendor rate management• Strategies for rate card management and mark-up • Tactics to align financial and talent goals • Q&A

Agenda


Bill Rate Components


Bill Rate• The rate charged to the customer

• $100 per hour• So, if Bob worked 40 hours in a week,

the customer would be invoiced $4000

Pay Rate• The rate a worker received as a wage

• $70 per hour• So, if Bob worked 40 hours in a week,

he would be paid $2800

Burden Rate• Staffing vendor employment cost for each

worker : workers comp insurance; other insurances; taxes; benefits• Burden rate is not typically transparent

to the customer or VMS• Burden rate can be between 13 – 25%

• For Bob, burden rate add $9.10 to $17.50

Bill Rate ComponentsExample:• Bob Worker earns $70/ hour as a software developer for

ABC Staffing• ABC Staffing charges Customer1 $100/hour for the time

worked


Approaches to vendor rate management


Open Bill Rates or Bidding • Managers set bill rates based on budget, need or

relationship with the staffing vendor• Vendors can then bid on the bill rate

Mark up• Manages the percentage via contractual relationship that

a staffing vendor charges over the pay rate of their worker• Using our $100 bill rate with our $70 pay rate, this

represents a 42% mark up

Rate card or Not to exceed rates• Manages the bill rate by job title and location that the

staffing vendor can charge the client• Not to exceed rates can be set by a client for all

vendors or managed separately for each vendor

Type of Bill Rate Management


• Benefits• Allows for fluctuations in the market for high demand

skills set• Allows manager to set rate by budget for position• Creates a competitive market for the vendors

Open Bill Rates or Bidding

• Disadvantages• No standard rates

• Resources of similar skill sets can be at varied bill and pay rates


Benefits• Visibility to the pay rate• Easier conversion to full time employee• Swifter shifts in the job or skill set market

Maximum Mark Up

Disadvantages• Vendors have more control over pay rate• Difficult to budget or project as the rates are not

established• Hiring Managers do not have ability to set rate directly

with the vendor


Vendors calculation: (Bill Rate – Pay Rate) / Pay Rate

In this example the mark up is 42%

Costs also included in this mark up• Background checks & Drug

screening costs• Salary & Commission for recruiters

or account managers• Overhead such as office space

Mark Up

Pay Rate = $70/hour

Burden Rate 13-25% =

$79.10 to $87.50

Bill Rate = $100/hour


Benefits• Accurately control and project cost • Vendors pipeline candidates knowing what the

maximum rates of future positions will be

Rate Card

Disadvantages• Does not allow for market flux• No visibility to pay rates• May loose candidates who want higher rates• Hiring Managers do not have ability to set rate directly

with the vendor


Client APay &

Bill are equal

3%

Pay is $13%

MarkUp 50-

100%11%

MarkUp 1-50%31%

Pay is $052%

Client B

Pay & Bill rate

equal2%

Pay Rate >

Bill Rate0%

Pay is 011%Mark up 1 -50%

60%

Mark up 50-100%24%

>100.1%3%

Sample Client Data Showing pay rate / mark up


Strategies for rate card management and mark up


Gaining benefits and mitigating the

disadvantages by establishing a maximum

mark up and rate card

Rate Control

Rate Card

Maximum Mark

up

Blending the mark up and rate card approach


Benefits Disadvantages

Blending Mark Up & Rate Card


Tactics to align financial and talent goals


Determine mark up

• Overall Program • Job category• Location• Difficulty of skill

Steps to pursue a controlled program for rate card management


Overall Avg Rate Card Avg* Mark Up Avg38%

40%

42%

44%

46%

48%

50%

46%

49%

42%

Rate card average derived from available pay rate information, over 30% of pay rates were not provided, or misrepre-sented at $1 or equal to the bill rate

What should the Mark Up be?

If you elect to set a maximum mark up, now the key is to find what is appropriate

Several factors go into determining that:

• Location • Job Category or Skill set• Volume of spend


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41%

46%50%

27%33%

41% 40%47%

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17%

Managed Mark Up Average

Mark up by Job Category of PeopleFluent Clients


Align Talent demand to Rate Goals

60%55%50%45%40%35%

Volume of Spend

Number of Suppliers

Mark Up

Hard to find skill set

Geography

Geography

Main components of managing rates is the volume of spend you can leverage and the number of suppliers

Other factors that can impact, are the hard to find skillsets or geography


Align Talent Demand to Rate Goals

60%55%50%45%40%35%

Volume of Spend

Number of Suppliers

Mark Up

A high volume of spend drives down prices

Determine highest use job category or skill set leverage a lower mark up


Align Talent Demand to Rate Goals

60%55%50%45%40%35%

Volume of Spend

Number of Suppliers

Mark Up

A high number of suppliers increases cost

Tier vendors by job category.Reward top performance by aligning vendors to their specialty


Align Talent demand to Rate Goals

60%55%50%45%40%35%

Volume of Spend

Number of Suppliers

Mark Up

Hard to find skill set

Increased demand or hard to find skills, drive higher rates

Offer higher price points on hard to find roles to allow supplier to attract that talent to your organization

TM

© 2014 PeopleFluent | Confidential Talent Insights. Business Outcomes.TM

ThankYou

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Cheryl TraczDirector – VMS Strategic Services o. 919-645-2986c. 919-812-0824e. [email protected]

effective rate strategies for vms

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