Over the last few years we have seen a notable shift in the way that organizations are managing their staffing needs, in particular their contingent workforce. With this shift brings new potential but also new challenges. Often, fear alone is the biggest obstacle, but for those willing to embrace change it could be the key to staying competitive and thriving in the market.
As a workforce management platform that supports staffing agencies with engaging contract workers, at PGC we’ve been seeing more and more companies looking to grow and expand into MSP programs. PGC’s Catriona O’Kane, Business Development Manager sat down with Satyen Chokshi, founder and CEO of TalentRupt, to understand the opportunities and the challenges of this. With over 15 years’ experience in talent management and the acquisition space, Satyen has been following this shift, navigating it himself and observing the market. From the new kids capitalizing on these opportunities to the old school players, some companies have stayed true to their roots while others have transformed the way they do business.
Catriona: Satyen, thanks so much for making the time to chat with us, I am excited to hear all about what you are seeing in the market working with VMS and your advice on how companies can take advantage of this.
For those who may not be as familiar with the terminology, what differences should you be aware of when engaging directly with the VMS and Client vs going through an MSP?
Managed Service Provider (MSP) is an outsourced agency that manages the contingent worker program of a client by managing its preferred staffing agencies.
A Vendor Management System (VMS) is the software that the client company licenses to enable the MSP to run the contingent worker program by allowing all transactions to happen. It allows the MSP to manage the workforce management process seamlessly. For the staffing agency, the process is exactly the same. If you are working with an internal. management program and their VMS, you work directly with the program manager. If you have an MSP and VMS, you still work directly with the program manager.
MSPs and VMS are clearly hot topics in the staffing world at the moment, and they have been making a mark for quite some time now, what advice would you give to a staffing firm considering working with an MSP?
Clearly there are both advantages and disadvantages of working with MSP/VMS, I personally feel VMS will often help drive top line growth, but with this comes immense competition and a constant drive to deliver candidates at record pace. Enterprises are adding 20-30 vendors to a program; hence this calls for innovative recruiting strategies. Finding a cost-effective way to stay competitive is needed, this kind of business is often lower margin, but high volume so can provide a lucrative business. Staffing agencies who decide to work with VMS may look to outsource certain element such as recruiting to help them produce quality candidates in a shot pan of time. Needless to say, performing well with one VMS can certainly open up doors with other VMS and also help expand into the various programs the VMS is involved with.
- The VMS will charge to be part of their program
- Margins are often capped at a lower rate
- Be aware of your supplier card – time to fill, candidates through to interview etc.
Cost is obviously an important factor for a recruitment company as they try to become more efficient and competitive. What do you see the average cost for a recruiter in NY including?
Cost is a constant ticket item for all agencies across the globe. Recruiting costs are becoming extremely expensive and increasing at a dramatic pace. Just the cost of a recruiter in most metropolitans will cost a staffing agency between $7-8k/month/recruiter.
Let me explain. A lot of agencies will consider the base salary as the cost of the recruiter, the way I look at the cost of a recruiter - it includes base salary, benefits, vacation, access to job boards, commissions, infrastructure costs. Basically all the costs that an agency makes on the recruiter in a given year to perform his or her job. When one adds all the costs up, the cost keeps stacking up. If one amortizes the cost over a year, it will average out to $7-8k/mo.
Working with an MSP/VMS brings a lot of advantages but moving into this area of business can also present challenges. What should businesses be aware of and do to best prepare for these?
VMS surely presents an opportunity, but it comes at a big price. The three big hurdles that I see are:
- Competition - each program typically will have 30-40 vendors working on a program.
- Lower margins - day by day we are seeing margins dwindling, clients are demanding rebates at various spend thresholds, tenure discounts, early payment discount, and an increase in contractor benefits as required by law, etc. Once you add all this up, the margins for a staffing agency become very tight. Anyone who chooses to venture into working with MSPs should realize that it's a volume game and often agencies will off-shore their recruitment through an RPO as allows high volume candidates quickly at a lower cost.
- Keep in mind not all programs are the same and you need to evaluate which ones make sense to support as a business.
- Lastly, the cost of doing business is very high, since the payment terms for a lot of these VMS programs is 60-90 days. This forces agencies to float heavy payroll and front load the cost.
When looking at terms with MSPs what do you see companies most commonly discuss?
Typically, most agencies will first see what kind of program it is Rate Card VS Margins). If it's a rate card driven program, it means that there is a set bill rate given and the agency can put its % on the candidates pay rate as far as it’s under the bill rate. Secondly, payment terms and discounts are often looked at very closely (Needless to say, better payment terms, less discounts/refunds to give back and the better the program). Thirdly, we often see agencies talk about if the account is a “touch account” or not, which means if they can have any contact with the hiring manager. Many VMS’ will prohibit you from having any conversations with the hiring manager, making it extremely tough to leverage relationships. Lastly, agencies will often see how big the program is from a funding perspective, the bigger spend the enterprise has, the more opportunity it will present.
What are your top 3 tips for working with an MSP?
MSP be can be a highly lucrative source of business if structured correctly. We have seen operations scale, working with an MSP model, again provided its structured correctly.
- Firstly, one of the quickest and most economic ways of structuring it correctly is leveraging an offshore RPO. There are multiple advantages of RPO - it can help a staffing agency with 1) Faster hiring 2) Significant Cost Saving, 3) Multiple X on ROI. Secondly, make sure all your ducks are in a row; process is extremely important.
- Make sure your process is lean and agile, quickly allowing recruiters to submit quality candidates. Timing is everything when playing the VMS game.
- Lastly, closely look at the ROI on the MSP; sometimes it may be better to walk away from the program if its not generating enough revenue, because costs will rack up quickly, so its very important to pay very close attention to the program and the return it’s generating.
TalentRupt is an RPO that assists staffing agencies in sourcing candidates through an outsourced – offshore model. PGC is a workforce management platform and supports agencies in employing contract workers across the US, enabling agencies to place a worker in any state with the payroll, employment and compliance being handled by PGC, and powered by Precision. If you’re looking at engaging with VMS and MSP, our team are happy to give you more information and chat about our solutions.