Break Even Markups
Can you tell me what percentage I would charge to my client if they only wanted to use our services to payroll an employee? Would I cut the rate from our standard 65% (which includes us identifying the candidate) to 50% or less? What is the break even point?
Thanks for the question.
My suggestion is to subtract real costs like taxes and insurance from the markup. Whatever is left over say for instance in this example you have to pay 14% for taxes, worker's compensation and cost of funds. Then 51% would be your gross profit.
What we do is divide that in 3 equal parts. One part is to pay overhead, one part is to pay the recruiter and the other part is profit for the company.
Using this model...and this example, that would be 17% for each part. Since payroll does not involve recruiting but does involve overhead and profit, The lowest I'd charge is your normal fee less 17% (the recruiting part of the gross profit) or 65%-17% which is 48%. This is your bottom line number. From there you can decide how much if any to bump the number.
This model is also the basis for how we compensate our recruiters. We tell them that they need to bill out 3x the gross profit of whatever they want to make.
Hope that helps. Of course you could figure out actual overhead numbers and profit numbers that you want and get more precise but this is a simple rule of thumb that can get you pretty close.
Thanks again for your question.
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