Margins are in decline because we’ve given the pricing power to the buyer.
In my work with clients, I find that even local firms working with very small accounts are now quoting the mark-up when they price their business. How did we get here?
This “open the books” mentality originated years ago in large account selling with the advent of the onsite model. In our zeal to “partner” with a client, we thought it was safe to divulge our cost model during negotiations. After all, we reasoned, we’re going to be living with this company and they’re giving us all the business. The problem is that we set a precedent that began to snowball, removing us from the position of power in pricing our business. Fast-forward a few years to the MSP and VMS days and the buyer now has all the power over our profitability. Even car dealerships have more guardianship over their prices than the staffing industry does!
We have to stop the madness and take control of pricing discussions again – at least in the SMB space. Let’s go back to quoting bill rate ranges. First ask the buyer what it pays for the position on a full-time basis. Next, figure out what you’ll need to pay on the low and high end. Finally, calculate a mark-up that fits within your desired gross profit range. Quote that bill rate range and let your client know you’ll confirm the final rate when the order is filled.
Think about it. When we go in to the grocery store to buy a gallon of milk, we pay the price on the label. We don’t expect the manager to tell us what the milk cost and the margin he’s getting.
