Recently, we received an invoice for $76,000 for a volume discount rebate from a large client organization. Obviously, this was a surprise. Because my former business partner signed the agreement, I was not aware of this discount setup. Volume discounts are becoming a trend in corporate America and now the staffing industry is affected.
It’s been a while since I studied economics in college, but what I do remember is that when the supply of a desired commodity goes down, the price goes up. We are in the digital staffing space, and our talent pool of mobile application developers, SEO specialists, web marketing managers and UX designers are scarce. Even though the talent is in short supply, our large client, and I’m sure the rest of corporate-America, still expect to take discounts with stated volumes.
I can fully understand the desire to save money, and when I visit Costco or Sam’s Club, it’s great to land that 16-pound bag of frozen shrimp where the shrimp net out to $2 per pound. Or even that tub of Mayo that will last four summers if it doesn’t spoil. The big box retailers have perfected the model and now corporate America wants to adopt volume discounts for service based industries. Is it fair for the staffing industry?
In staffing, we are penetrated only 1.8 percent into the U.S. workforce. In my opinion, that does not justify volume discounts — that calls for premium pricing. As credit card balances grow for customers of these financial institutions; interest rates don’t go down; if fact, they go up. Where’s the volume discount?
Regardless, large clients will continue to look for these and any other ways to save money. We need to ensure the agreements don’t hurt us in the process. If you are an executive at a large staffing organization or an owner at a small or midsize firm, encourage your managers to negotiate fair terms for staffing. They should use a basic economic model that is appropriate for the talent you are supplying.
Our client, a large financial institution, calculated the rebate based on sales volume over a specific time period. Luckily, upon double checking their numbers, we discovered their calculations and time period were wrong. The new amount we owed was approximately $40,000 — a bit better, but that is a base salary for a junior recruiter we could have hired instead.