Supply and demand - do agents not understand this concept?

[sartois]

So the client I am working with want to renew my contract. I am fully aware of the demand for the field I am in, and am also aware there is very little supply based on the volume of opportunities that come my way for a higher daily rate than I am on. The agency who introduced me to this client are effectively a sub agency and when I attempted to negotiate a better margin (to renew) they said they will need to get the client to increase so they do not have to take a cut in their margin, which they say is fixed. The sub agency get 12.5%, the other agency get 12.5% and say it's not worth their while to get any less and have told me basically that they will need to ask the client to increase it.

I am pretty sure that the client will agree to increase to what I have asked for, and I am more than comfortable with not renewing if they don't, but are agents normally this inflexible on renewals? If I was to not renew this contract then the agency will get 12.5% of nothing, and the client will not be happy to lose me. The agents themselves had a tough time filling this position in the first place. I don't get it, seems like a lose/lose to me ... unless of course they are bluffing...

[northernladuk]

unless of course they are bluffing...

This. Play the game and if they let you walk, which is highly unlikely, then come and slate them. Until then negotiate hard and see how they fold.

[SueEllen]

The agent will push it to the wire.

Just find yourself another contract and be prepared to walk.

[DirtyDog]

I am pretty sure that the client will agree to increase to what I have asked for, and I am more than comfortable with not renewing if they don't, but are agents normally this inflexible on renewals? If I was to not renew this contract then the agency will get 12.5% of nothing, and the client will not be happy to lose me. The agents themselves had a tough time filling this position in the first place. I don't get it, seems like a lose/lose to me ... unless of course they are bluffing...

It's not supply and demand at all - it's having a business model which requires a minimum of 12.5% margin.

If you can get a higher rate elsewhere, then you should do so - or negotiate with everyone in the chain to increase your daily rate. If the client understands supply and demand, then they will understand that they need to pay more to retain your services.

Of course, it could also be that when you negotiated the role and rate originally you also failed to take into account the laws of supply and demand - if the agency had a tough time filling the position, and there are better paying roles available to you, then maybe you should have got a better rate.

[northernladuk]

It's not supply and demand at all - it's having a business model which requires a minimum of 12.5% margin.

If you can get a higher rate elsewhere, then you should do so - or negotiate with everyone in the chain to increase your daily rate. If the client understands supply and demand, then they will understand that they need to pay more to retain your services.

Of course, it could also be that when you negotiated the role and rate originally you also failed to take into account the laws of supply and demand - if the agency had a tough time filling the position, and there are better paying roles available to you, then maybe you should have got a better rate.

+1 to all of this but there is a word of caution about making clients pay more to keep you doing the role you were brought on to do. If you have added value above and beyond then yes it is a no brainer but holding clients to ransom because you are in the door can back fire spectacularly. Sounds in this case the OP has managed to address it properly but I am sure it isn't a trick to be used at the drop of a hat. In most cases I would be going after the agents cut first, which in this case, sounds difficult.

[Wanderer]

It's not supply and demand at all - it's having a business model which requires a minimum of 12.5% margin.

In their dreams.

I know a number of contractors who are with agencies taking ~5%.

[northernladuk]

In their dreams.

I know a number of contractors who are with agencies taking ~5%.

And I am sure there are a hell of a lot of them. I believe Lorien only take 3-4% from their major clients... Normal disclaimer is their lips were moving when they told me this so could likely be a bit of a lie

I can't see those values working for smaller agencies who don't have major clients on though so it's plausible. 5% of 400 is 20 quid, 12.5% of 400 is 50 quid. Although the percentages look a lot different it's peanuts a day.

[Dominic Connor]

Speaking as a pimp who used to be a contractor, I have to say you need to understand market microstructure better, not spout some teenage misconception of "supply and demand", it is as useful as trigonometry to driving your car.

The agency may well be on a fixed margin, this is quite common, they would be in breach of their contract to cut their margin and more importantly to them, the profitability would drop hard, giving you 2% would about halve their profit.

Explain to me why they should want to do this ?

If you quit and they replace you, then they make more money.

To get your pray rise here's the grief of having to persuade the agency they sub to, then HR/procurement and quite probably the project manager. A lot of work and you may well walk anyway.

Some clients "set rates" based upon HR's perception of the market, this is at best vaguely correlated, so the agent will spend a lot of effort and probably annoy several people in the client, time and goodwill that can be better deployed for his and his employer's benefit.

My advice is to walk.

The only way clients learn that rates have gone up for a given skill is when important holes start appearing, sometimes not even then.

[sartois]

Speaking as a pimp who used to be a contractor, I have to say you need to understand market microstructure better, not spout some teenage misconception of "supply and demand", it is as useful as trigonometry to driving your car.

The agency may well be on a fixed margin, this is quite common, they would be in breach of their contract to cut their margin and more importantly to them, the profitability would drop hard, giving you 2% would about halve their profit.

Explain to me why they should want to do this ?

Erm, well that would be that they risk getting nothing rather than something wouldn't it? Unless my teenage misconceptions of maths is equally bad then I thought 5% of something is more than 12.5% of nothing. I am not saying that I am irreplaceable - far from it, but I can pretty much guarantee that the client will be without someone for at least a month and probably longer, unless they got really lucky. What would that do to their profit margin? Half of their profit > no profit. This seems like basic maths, but is obviously showing up how little I know about the "market microstructure"

If you quit and they replace you, then they make more money.

Only if they find someone to replace me. They probably will not. The main agency farms this out to as many agencies as possible as they have struggled to find someone in the past. So the sub agency would be one of several trying to find a replacement.

My advice is to walk.

So everybody loses, except for me, as I will take a higher paid role. Fair enough.

[Wanderer]

The agency may well be on a fixed margin, this is quite common, they would be in breach of their contract to cut their margin

That's the best bulltulip agency excuse I've heard yet.

Explain to me why they should want to do this ? If you quit and they replace you, then they make more money.

As sartois said, if the contractor quits then the the cash cow is gone and the agency is getting nothing. There is no guarantee that the agency will get one of their people in to replace the contractor who is leaving either. Certainly, if I were leaving because the agency wouldn't do a deal then I'd make damned sure that every agency in town knows the client is recruiting so my agency would have bugger all chance.

My advice is to walk. The only way clients learn that rates have gone up for a given skill is when important holes start appearing, sometimes not even then.

Ahhh, we do agree on something then.