In the staffing industry, margin and markup are financial metrics used to calculate profitability and pricing strategies for traditional staffing agencies, but marketplaces are different. Here’s a breakdown of each term and why take rate is preferred in marketplace models:
Margin refers to the difference between the cost of providing staffing services and the revenue generated from those services. It is typically expressed as a percentage of revenue. In the staffing industry, margin represents the profit earned by the staffing agency for connecting job seekers with employers. It includes both the agency’s direct costs (e.g., wages, benefits) and indirect costs (e.g., overhead, administrative expenses). Margin is used by staffing agencies to evaluate their overall profitability on a per-placement basis.
The typical margin percentage for a staffing agency can vary widely based on several factors, such as the industry, location, specialization, and competition, among others. Margins can also be influenced by the overall economic climate, which may affect client budgets and hiring demands.
In general, the gross margin for staffing agencies – the difference between what they charge their clients and what they pay their temporary/contract employees – typically falls within the range of 40% to 50%.
Markup is a pricing strategy where the staffing agency adds a percentage or fixed amount to the cost of labor to determine the price charged to the client (employer). For example, if the cost of providing a temporary employee is $28 per hour and the agency applies a 50% markup, the client would be charged $42 per hour. Markup is a common pricing method in the staffing industry, and it directly relates to the agency’s profit margins.
The markup percentage of a staffing agency refers to the percentage difference between what the agency charges their client and what they pay their contracted or temporary workers. Staffing agencies typically mark up the pay rates of their temporary and contract workers when billing their clients. The markup covers the agency’s overhead costs and profit margins.
Take rate is a concept often associated with marketplace business models such as Uber, Doordash, Amazon and even Quinable. It represents the percentage of the total transaction value that the platform or marketplace operator retains as revenue. In the context of the staffing industry, take rate would be the percentage of the total fees (or revenue) earned from the staffing placement that the staffing platform (or marketplace) keeps. Take rate is commonly used in staffing marketplaces, where platforms connect job seekers and employers, as it aligns with the platform’s role as an intermediary.
Take rate is favored with marketplace clients because it aligns with the cost saving value the platform provides. The platform charges a smaller percentage of the transaction, making its earnings proportional to the success of the placements made through the platform. In summary, while margin and markup are traditional methods used in the staffing industry to calculate profitability and pricing, take rate is a preferred approach in marketplace models because it aligns the platform’s revenue with its role as an intermediary and encourages a focus on client satisfaction and cost control.
Calculating a take rate of 20% as a staffing marketplace. To calculate the take rate, follow these steps:
Multiply the total transaction value by the desired take rate as a decimal. To convert a percentage to a decimal, divide it by 100.
Take Rate = Total Transaction Value × (Take Rate Percentage / 100)
For example, if the total transaction value of a completed shift is $1,000 and Quinable has a take rate of 20%:
Take Rate = $1,000 × (20% / 100) = $1,000 × 0.20 = $200
So, a 20% take rate on a $1,000 staffing placement transaction would result in Quinable retaining $200 as revenue, and the remaining $800 would be paid to the worker
Let’s use it in more a real-world situation involving a nurse: To calculate a 20% take rate when the healthcare facility wants to pay the worker $28 per hour, we need to determine the total transaction value (the amount charged to the healthcare facility client) that allows the marketplace to pay the worker $28 while keeping a 20% take rate. Here’s how you can calculate it:
Set up the equation:
Let “X” be the total transaction value (the amount charged to the employer).
The Healthcare Facility Client wants to pay the worker $28, so that part of the transaction value is $28.
Calculate the remaining portion for your take rate:
To calculate your take rate, subtract the amount you want to pay the worker ($28) from the total transaction value.
Remaining for Take Rate = X – $28
Set up the take rate as 20%:
To achieve a 20% take rate, Quinable’s earnings per hour/shift (the remaining portion for take rate) will be 20% of the total transaction value.
Take Rate Percentage = 20% (0.20 as a decimal)
Create the equation for your take rate:
The equation will be: Remaining for Take Rate = Take Rate Percentage × X
Solve for X:
Substitute the values into the equation:
X – $28 = 0.20X
First, isolate the X term on one side of the equation:
X – 0.20X = $28
Combine like terms:
0.80X = $28
Divide both sides by 0.80 to solve for X:
X = $28 / 0.80
X = $35
So, if the Facility wants to pay the nurse $28 and for the marketplace to have 20% take rate, the marketplace would invoice the healthcare facility a total transaction value of $35 per hour for the shift. Quinable would retain 20% of $35, which is $7, as revenue, while the worker receives $28.
Between the 2 scenarios posted above, you can see that the market place saves the healthcare facility $7 per hour on the example shift. How many hours a week does your Facility use for staff?
*illustrative purposes only