A random Google search brought me to this Wired article, "The See-Through CEO," from March 2007 (remember 2007?). Though it seems kind of old-hat now, the thrust of the article (is it strange to use "thrust" metaphorically in a corporate blog?) is summed up thusly, "Secrecy is dying. It's probably already dead." That is, trying to be stealthy about the real workings of your business is pointless because, the truth will out (on the interwebs).
The author suggests that the most adequate response to inescapable visibility is transparency:
All of which explains why the cult of transparency has so many high tech converts these days. Transparency is a judo move. Your customers are going to poke around in your business anyway, and your workers are going to blab about internal info - so why not make it work for you by turning everyone into a partner in the process and inviting them to do so?
This kind of got me thinking about transparency at Aquent and in our business more generally. For example, the way our business works is that we pay the talent less than the client pays us (if you didn't know that already, I'm sorry to just spring it on you). We generate the bill rate (what we charge our client) by adding a percentage of the pay rate (what the talent gets) to the pay rate. Now, depending on a number of factors, that percentage can range from 45% to 100%. The money we make comes from that split times the number of hours worked.
I'm assuming that, if you have worked through us or other staffing/temp agencies, you are aware of this set-up. My question is: How frequently have you been told specifically what we (or anyone) is charging the client?
My belief is that we should share this info for the same reason that companies should be transparent: People will find out anyway. (I know I did when I temped through MacTemps.)
What do you think?
I personally would love to know what my agency (Robert Half Technology) is charging clients for my time. I appreciate that their services are worth some amount of money to me, but knowing the actual number would allow me to make a more informed decision. For instance, you mention that they could be charging the client TWICE what the pay me. If that's the case, they'd have a pretty convincing argument for me explaining why I wouldn't be better off as a true free agent, charging maybe 150-175% of my current rate.
It's important to remember that there is a reason for the markup and that just because a company is paying Robert Half (or Aquent) more than you're getting, doesn't mean that the company would pay you that amount. After all, Robert Half did work to get you that gig. They developed the relationship with the client. They interviewed you and made an introduction. Their years of experience and reputation actually opened the door for you. If something happens on the job, Robert Half is responsible for dealing with it. Companies like Aquent actually provide benefits for their talent, so this spread helps cover that, etc.
On the flip side, think of all the work that you would have to do to get that gig on your own - and then all the work you'd have to do to make sure you got paid, had benefits, had liability insurance, etc. afterwords.
I'm not saying that the markup isn't justified - quite often it is. I just think that keeping it a secret is short-sighted and even naive. Not only that, it can foster distrust. And for what?
I'm not sure I agree with you Matt. As just pointed out by PV Paul, I think that there is a very small amount of appreciation as to everything that goes into our role of connecting people with work by the people seeking it, generally speaking. It isn't until they (our former talent turned client) are in a role of having to find someone in a pinch and the true cost of every piece of the service that you point out in terms of monetary value, time and stress that the value is truly realized. I believe it was Warren Buffet who said "Price is what you pay. Value is what you get." If people think that we add value (talent or client) they will work with us and if they don't, they won't. I don't think, though, that sharing our costs will foster any more trust and will in the end create more work. Once you decide to do work, provided it is the work you agreed to do, I believe if you stick with the original agreement the trust will be earned. And that is what we want our relationships to be based on, IMHO.
Before I discovered my staffing firm bill rate or mark-up, I learned my ad agency bill rate: 500% mark-up. I also heard about disreputable staffing firms charging 300% mark-up on unqualified, poorly reviewed candidates during the .com boom. So when I first saw my staffing firm bill rate, I was surprised to see it was only 45%. It increased my respect for the staffing firm. That time I was covering for A/P and paying the invoice for me, but lately that same staffing firm has been simply forwarding the order to me so I know who, when and where, and the order includes the bill rate. I've continued to be impressed that they're taking such a small percent. Aiming for a small, long-term profit is a sign of a reputable company that cares about its clients, contractors and employees.
Transparency tells me the staffing firm respects my experience. They're not low-balling me and saying I'm lucky to get the job while telling the client how experienced I am and marking me up 300%. I'd like to know the bill rate more often, because the client's expectations are based on what they're paying, not what I'm receiving. If I knew I was being marked up 100%, I'd know I have to give 200% and stop futzing with my iPod during billable hours. I'd also like to know my bill rate when talking to clients about becoming a permanent employee. (I know, all chit-chat about permanent employment is supposed to go through the staffing firm. Remind your clients!)
What about transparency with the client, though? I'm not sure I want that. When the chit-chat about permanent employment starts, I only want them to see cost savings from hiring me outright. I don't want them to know I'll actually be making a higher hourly rate.
Thanks for chiming in, respected colleague from the beautiful, American Southwest!
I'm not saying that we necessarily have to start off with "this is what I'm paying you and this is what I'm charging the client." I am saying that it's not that hard for people to find out what the bill rate is and therefore we shouldn't treat it like a big secret.
I also think that taking the initiative with sharing this info sends a strong message that we view our relationship with talent as a partnership with them (and not just the client, who will know what we are paying the talent). If they think that the wage we are paying them is fair, then I'm not sure that finding out the bill rate will radically change that and, frankly, if this type of sharing leads to a conversation about the value we offer, I think that's a conversation worth having. IMHO.
That being said, I very much appreciate you taking the time to read and comment, Lucas!
Thanks for the comment, Anna. I also think you make in an interesting point by highlighting the effect that knowing the bill rate has on your perception of the job as talent.
I think this is a very interesting idea. From the talent perspective, we "know without knowing" that the rate we are being paid is 150-200% less than what the client is being charged. Of late that knowledge has rankled, because the feeling has been that some placement agencies are not charging the client a premium for their offered services, but instead are taking their cut directly from the talent. If i can go out and contract at $50 or $60 an hour on my own for a job, but only get paid $20-30 from a placement agency, the weight of the cost of using the placement agency is being born by the side of the partnership least able to pay, the talent. It would be more just if the talent were paid say $40-$45 per hour (closer to what they could get on their own, less a little something for the agency's efforts, while the client paid a premium on top that. The transparency you speak of would allow me to make informed judgements about the different agencies around town: who is lowballing at my expense and who is acting as a true service to both sides of their client lists.
I think that until Aquent can either find the perfect pay balance or find clients who are willing to actually pay for talent, transparency will not matter. Granted, its awesome what Aquent does; basically because no one else is doing it. Graphic design is a tough business. That being said, seeing positions posted for a web designer that knows flash, web design and print design for the jaw-dropping salary of 35K isn't going to cut it. That is senior-level design knowledge. So the balance must be maintained. Like one commenter mentioned, you better have a good case for why I'm not making what I'm worth because you got me in the door. What stops any of us from getting on Craigslist and picking up freelance otherwise?
I actually used to work for The Creative Group/Robert Half International. Their markups are very comparable to AQUENT's, if not identical. Hopefully that will give you some peace of mind.
Michael, I don't think those comments are really fair. Without having worked inside of a specialized placement agency, it's really hard to know what goes into finding and filling these jobs. We can spend weeks and weeks recruiting and searching for job opportunities, marketing you into dozens of companies, and hours upon hours sourcing to a specific job...and at the end of the day, week, or quarter, we don't get paid a dime until one of our clients actually selects a candidate for a job. There is a ton of effort that goes into even finding these jobs--for example, in the Phoenix office, we try to have at least 200 outbound calls each week searching for job opportunities for our talent. We try to talk to at least 30 new candidates each week and interview at least 12. We also try to custom showcase at least 60 candidates to different hiring managers every week. All of that requires the efforts of five people, plus all of our expenses. When you remember that we don't get paid anything until a client actually has a job and selects a candidate, it makes sense that we require a markup to even make a reasonable profit.
The goal is to fill several orders a week, but we often have weeks where we only fill 1-2 job orders.
Abstractly, it sounds terrible that the client pays 45-90% more than what you are making, but when you realize that is our only source of income for the company that we are running, then the business model and pricing structure make a little more sense...hopefully. Our goal is to ALWAYS pay you as much as we can for a job. Promise.
Thanks for responding, Mandy. I had a thought or two as well.
1) If you can get work with a client for the same amount that we are billing, then you should go for it. I'm not saying that to be snide. I'm saying it because it's what I believe.
2) If you can't get the same rate, that may be because we have a relationship with the client that you do not yet have, the client prefers to work with agencies for operational reasons, or they just aren't willing to pay it.
3) The difference between pay and bill rate does not translate into pure profit. First of all, it covers overhead costs that you would have to bear yourself. For example, you do not get paid for all the time that you spend actually getting a gig. Secondly, you have to pay the employment taxes (on a quarterly basis) associated with the money you make. Third, you have to actually collect the money. Add into that the cost of health insurance, liability insurance, etc., and I hope you'll start to see the value in having someone else take care of that stuff so that you can focus on doing the work you actually want to do.
Let me try to be more clear. You can charge the client 500% of what I make for all I care, as long as the rate that you pay me is reasonably closer to the rate I can reasonably expect to get on my own.
To be fair, Placement Agencies do provide talent access to jobs, and sometimes provide professional coaching. Talent certainly can pay for those services. What's a reasonable fee for those services? Well, in the entertainment industry, a talent agent gets 10-20% of the gross. They conduct business in much the same way that Mandy cites above. So, If I can get $50 per hour on my own, It's reasonable to pay $5-$10 per hour to the placement agency for services provided, leaving me with a nice $40/hr. And let's not kid ourselves, When you've got 5 recruiters in an office and a talent pool of hundreds of freelancers, the $5-$10 per hour that you'd get from every working person is sizable in its own right.
Getting paid by me at 10-20% works, now go get paid from the client too. They have deeper pockets than I do and I don't much care what you charge them. The client is counting on you to provide the service of maintaining a freelance pool, something they would have a hard time doing on their own. The client wants you to provide them with instant access to truly talented people, lots of them, usually on short notice. The client is counting on you to pre-screen the talent based on their specific needs. The client calls you, and lets you place the ads, write up the craig's list notices, and collect and screen hundreds of resumes so they don't have to. I get it. You work hard and you do deserve to be paid for those services. By them. I already paid you for the services I get. So charge a premium.
Be transparent, tell the client top talent has a market value of x-dollars. Tell them what percentage you get from the talent, tell them what their service charge is on top of that. So, If you can charge $80 per hour to the client because you actually sold them on the fact that you provide premium service and find top talent, good for you, you deserve the additional $30 per hour that you get from them. And look! You've made 100% of what I've made! I get $40 per hour, You get $40 per hour! And I'm okay with that because my pay is reasonable. If you played it right, the client should be happy too.
Michael - I agree that Aquent should be paying talent a fair wage while charging clients what the market will bear. At the same time, I do not think it makes sense to compare what Aquent is paying you to what you could get on your own. As I said before, if you can get it on your own, by all means, go get it on your own. Why should Aquent benefit from your labor if we are not adding anything to the equation? The answer is simple, we shouldn't. If we are adding something to the equation, however, then it makes sense that we get compensated for that.
We are a business. From a business standpoint, it makes sense for us to maximize the split between pay and bill rates. At the same time, we need to be careful. If the pay rate is too low, qualified talent will balk. If the bill rate is too high, clients will balk. Talent need to judge our rates based on what they can get by other means; clients judge our rates based on the quality of talent we provide; the quality of talent depends on what we're able to offer, etc.
Just as one of our clients has the right to reject our bill rate, you have the right to reject the pay rate we are offering. If it's too low, say "no." When people push back, we learn what will work and what won't.