Agents' Take

[Lucifer Box]

1) Is it fair - do they earn it?

2) How often do you understand the margin?

3) Who rules the market - Contractors, Clients or Agents?

4) Is it just a question of supply or demand?

5) Is it viable in the long term?

Just in case anyone missed ancient's question the first time and/or was confused that he thought there was only one agent.

[wc2]

1) Is it fair - do they earn it?

2) How often do you understand the margin?

3) Who rules the market - Contractors, Clients or Agents?

4) Is it just a question of supply or demand?

5) Is it viable in the long term?

Just in case anyone missed ancient's question the first time and/or was confused that he thought there was only one agent.

What question ?

[XLMonkey]

it's a free market

...but a very expensive one at the same time.

Before I start, there's an important point of language to get out of the way. Margin is the difference between prices and costs. It is not the difference between your daily rate and the daily rate charged to the client. That is the markup, not the margin. Part of the problem with discussions about rates is that people use the word margin (and therefore think, margin=profit), when they're actually talking about markup. An agent can be charging 30% markup on your rate and still be operating at a loss.

Anyway, with that said.... answers on a postcard.

1. Fair is irrelevant. I don't care how much the agent is earning, provided that
- I get the rate to me that I feel is appropriate to the work (and I set that rate based on market research, not the agent based on the individual assignment).
- I'm not constrained at the end of the work on whether I use the same agent at the same client. So far, I have found that when push comes to shove the agents will not insist on these clauses (provided that the client has already met me before we get to negotiating on it).

2. I won't work with any organisation, or agent, where I don't know the effective rate to the client. I don't care what the markup is, but I do care about what the client thinks they are getting for the money (i.e. do they think that they are getting something, or someone, more qualified than the reality?).
... with that said, it is worth understanding the underlying costs that the agent will incur for running their business.
- the fixed costs of running an agency are relatively low, but will probably amount to 3-5% on top of your daily rate. The bigger costs are the agents salary and commission payments, but these vary according to the volume of business they are turning over.
- invoicing and contract management (probably costs 1% by contract value)
- cashflow or factoring (if they are paying you before they get paid, this will probably account for about 3% on top as well).

Therefore, depending on the nature of the service they offer, an agent would struggle to make any money if they charged less than 5-6% on top of the average contract. If they are taking cashflow and invoicing risk, 10% would probably be a floor level. If the agent is taking less than this, then you will probably need to ask yourself whether they are likely to stay in business (and since they are your salesforce, it's not necessarily a good idea to get rid of them just because you have a contract now....)

However, just like being a contractor, the business is really feast or famine. If the market is up, then the agent will make a very substantial profit on even relatively low markups. If it's down then they may make big losses, or struggle to break even with high markups.

3&4. Yes, it is supply and demand; but as to who rules? It depends on how good you are at managing the negotiations. Contract rate negotiations are a bit like poker - it's a game of limited information and people who understand the game win more often, regardless of how good their hand is. There are three key bits of information:
- How much the client is prepared to pay for an outstanding candidate (it's always more than the advertised rate, often a lot more)
- How many other candidates there are
- Whether you can afford to turn an unattractive offer down (have you got money in the bank, have you got other options)

You have to make it your business to hold as much of that information as possible, and limit the extent to which you give information to the other party that might reduce your negotiating power. My advice? Buy a copy of Getting to Yes (seminal negotiating skills book, written in American, but understandable nonetheless). Read it, then read it again. If you apply the rules of negotiation, then all that is left is supply and demand.

5. Yes, it is definitely a viable, and valuable business long term. Agents are just salespeople. Sales is essential in any business, and as honourable profession as any other. Of course, there are plenty of unethical salespeople: but then there are plenty of unethical people in other professions (what do you call someone who expects their staff (or contractors) to work more than their required hours? That's every bit as unethical as sharp practice in sales, but treated as much more acceptable).

[DodgyAgent]

...but a very expensive one at the same time.

Before I start, there's an important point of language to get out of the way. Margin is the difference between prices and costs. It is not the difference between your daily rate and the daily rate charged to the client. That is the markup, not the margin. Part of the problem with discussions about rates is that people use the word margin (and therefore think, margin=profit), when they're actually talking about markup. An agent can be charging 30% markup on your rate and still be operating at a loss.

Anyway, with that said.... answers on a postcard.

1. Fair is irrelevant. I don't care how much the agent is earning, provided that
- I get the rate to me that I feel is appropriate to the work (and I set that rate based on market research, not the agent based on the individual assignment).
- I'm not constrained at the end of the work on whether I use the same agent at the same client. So far, I have found that when push comes to shove the agents will not insist on these clauses (provided that the client has already met me before we get to negotiating on it).

2. I won't work with any organisation, or agent, where I don't know the effective rate to the client. I don't care what the markup is, but I do care about what the client thinks they are getting for the money (i.e. do they think that they are getting something, or someone, more qualified than the reality?).
... with that said, it is worth understanding the underlying costs that the agent will incur for running their business.
- the fixed costs of running an agency are relatively low, but will probably amount to 3-5% on top of your daily rate. The bigger costs are the agents salary and commission payments, but these vary according to the volume of business they are turning over.
- invoicing and contract management (probably costs 1% by contract value)
- cashflow or factoring (if they are paying you before they get paid, this will probably account for about 3% on top as well).

Therefore, depending on the nature of the service they offer, an agent would struggle to make any money if they charged less than 5-6% on top of the average contract. If they are taking cashflow and invoicing risk, 10% would probably be a floor level. If the agent is taking less than this, then you will probably need to ask yourself whether they are likely to stay in business (and since they are your salesforce, it's not necessarily a good idea to get rid of them just because you have a contract now....)

However, just like being a contractor, the business is really feast or famine. If the market is up, then the agent will make a very substantial profit on even relatively low markups. If it's down then they may make big losses, or struggle to break even with high markups.

3&4. Yes, it is supply and demand; but as to who rules? It depends on how good you are at managing the negotiations. Contract rate negotiations are a bit like poker - it's a game of limited information and people who understand the game win more often, regardless of how good their hand is. There are three key bits of information:
- How much the client is prepared to pay for an outstanding candidate (it's always more than the advertised rate, often a lot more)
- How many other candidates there are
- Whether you can afford to turn an unattractive offer down (have you got money in the bank, have you got other options)

You have to make it your business to hold as much of that information as possible, and limit the extent to which you give information to the other party that might reduce your negotiating power. My advice? Buy a copy of Getting to Yes (seminal negotiating skills book, written in American, but understandable nonetheless). Read it, then read it again. If you apply the rules of negotiation, then all that is left is supply and demand.

5. Yes, it is definitely a viable, and valuable business long term. Agents are just salespeople. Sales is essential in any business, and as honourable profession as any other. Of course, there are plenty of unethical salespeople: but then there are plenty of unethical people in other professions (what do you call someone who expects their staff (or contractors) to work more than their required hours? That's every bit as unethical as sharp practice in sales, but treated as much more acceptable).

Yaaaaaaawwwwnnnnnnn


And Lucifer for posting the thread in the first place.

[Denny]

...but a very expensive one at the same time.

Before I start, there's an important point of language to get out of the way. Margin is the difference between prices and costs. It is not the difference between your daily rate and the daily rate charged to the client.

Other incorrect terminologies, misleading assumptions and confusions:

Freelance
Same goes for the word 'freelance' which is often used to describe owner manged businesses (own limited company) or umbrella PAYE contractors. The correct use of the term 'freelance' is only for 'sole traders' who are not set up with or through a limited company operation, manage their own tax affairs, get paid their gross fee and declare their own tax and NI liability via self-assessment tax returns or through an accountant. We're normally not permitted to work via this arrangment if recruiters are involved.

Agency
No we don't work through agencies. We're sourced through employment businesses. Employment Agencies are used to source permanent staff, not flexible 'workers' and contractors.

Good 'Agency' and Bad 'Agency'
More subjective, but still incorrect. There is no such thing as a 'good or bad 'agency' that you can reliably recommend to another contractor because they cannot be independently or objectively assessed. Each candidate who uses employment businesses (to use their correct name) will have a vastly different experience, depending on who they're dealing with and the quality of the relationship you have with a recruiter will depend on client pressures, internal management pressures on recruiters to meet sales targets and so on.

Consultant
Recruiters often refer themselves as recruitment 'consultants.' They're not, they're 'sales' staff [or so we think....]

Sales Staff
What exactly do they sell? They don't get paid for sourcing candidates so they're clearly not selling a service at pre-hire stage because clients haven't bought anything. Clearly, the hirer doesn't value the recruiters' efforts prior to engaging a contractor. They only get income when they've sourced contractors who are already on site. Yet, as contractors, who operate our own businesses, in our case by default of having or using a limited company set up, we're selling our own services to the end client otherwise we wouldn't be in business would we. Yet the recruiter is still getting a cut (a mark up). What for? Again, the recruiter can't really be selling anything even when we are on site. When did they buy anything from us to sell or distribute? I don't remember licensing my services out to the recruiters, did you? If we did sell our services then we would be employees because we'd be selling our labour to the hirer.

[DodgyAgent]

Other incorrect terminologies, misleading assumptions and confusions:

Freelance
Same goes for the word 'freelance' which is often used to describe owner manged businesses (own limited company) or umbrella PAYE contractors. The correct use of the term 'freelance' is only for 'sole traders' who are not set up with or through a limited company operation, manage their own tax affairs, get paid their gross fee and declare their own tax and NI liability via self-assessment tax returns or through an accountant. We're normally not permitted to work via this arrangment if recruiters are involved.

Agency
No we don't work through agencies. We're sourced through employment businesses. Employment Agencies are used to source permanent staff, not flexible 'workers' and contractors.

Good 'Agency' and Bad 'Agency'
More subjective, but still incorrect. There is no such thing as a 'good or bad 'agency' that you can reliably recommend to another contractor because they cannot be independently or objectively assessed. Each candidate who uses employment businesses (to use their correct name) will have a vastly different experience, depending on who they're dealing with and the quality of the relationship you have with a recruiter will depend on client pressures, internal management pressures on recruiters to meet sales targets and so on.

Consultant
Recruiters often refer themselves as recruitment 'consultants.' They're not, they're 'sales' staff [or so we think....]

Sales Staff
What exactly do they sell? They don't get paid for sourcing candidates so they're clearly not selling a service at pre-hire stage because clients haven't bought anything. Clearly, the hirer doesn't value the recruiters' efforts prior to engaging a contractor. They only get income when they've sourced contractors who are already on site. Yet, as contractors, who operate our own businesses, in our case by default of having or using a limited company set up, we're selling our own services to the end client otherwise we wouldn't be in business would we. Yet the recruiter is still getting a cut (a mark up). What for? Again, the recruiter can't really be selling anything even when we are on site. When did they buy anything from us to sell or distribute? I don't remember licensing my services out to the recruiters, did you? If we did sell our services then we would be employees because we'd be selling our labour to the hirer.

I think amongst your diatribe of egocentric bollocks that the agency fee is spread over the term of the contract. So instead of paying a £5000 or whatever fee upon placement, the sum is paid over a period of months related to whether the contractor remains or not. As part of the agencies responsibility is to manage the payroll it seems quite sensible that as an incentive to ensure that the contractor remains on the job and is well looked after that the agency receives his commission at the same as the contractor receives his pay. I cannot think of a better system myself and nor can the market.

Like every other little twerpy cheapskate Denny you expect everyone to doff their cap (and watch their job titles) to freeloaders like you. Remember you dont pay, the client does, and it is the client that ultimatly chooses to pay the agency.

[Denny]

As part of the agencies responsibility is to manage the payroll it seems quite sensible that as an incentive to ensure that the contractor remains on the job and is well looked after that the agency receives his commission at the same as the contractor receives his pay. I cannot think of a better system myself and nor can the market.

I can think of a better system: Pay the agent up front. That way the agent feels valued for the contribution they make and will encourage them to matchmake better than they do at the moment because they're being paid to do just that. The sales element is removed from recruitment, as it should be, with the emphasis being placed on quality matching not speedy expediency for a quick, greedy buck with little attention being paid to accurancy of job specs, quality candidate searches and so on. Also, if the client paid up front with no refund if they dump a contractor or terminate unfairly, they might well reconsider the lengths of their contracts, the terms and conditions a contractor would be working to and they wouldn't terminate unjustly just to save a buck because they would have to honour their contract lengths or risk a financial penalty. That way both the agency that had done their job properly and contractor would win at the expense of an abusive client. I can't think of a better system than that. As usual your answer implies that what's in the agent's interests are in the interests of contractors too. Not so. The current model simply serves agency who lives in risk free bubble and client who wants the option of shafting a contractor with no legal hassles involved - just like agencies do at the moment by. Just like opting out does, just like IR35 tax system does, the contractor pays dearly, and pays even more dearly when things go tits up. It's time the pendulum of power swung more fairly in favour of the contractor, particularly good ones (you're now being paid to screen us now, right?) who deserve a damned sight better deal than they're getting now.

Like every other little twerpy cheapskate Denny you expect everyone to doff their cap (and watch their job titles) to freeloaders like you. Remember you dont pay, the client does, and it is the client that ultimatly chooses to pay the agency

You still haven't answered what they are paying for exactly. Why am I a freeloader? Why so abusive and personal in your manner toward me. Can't you disagree without resorting to insults? I think I touched a nerve with you.

[Not So Wise]

Skipping the first 2 because the contractors will never agree with agencts anyway

3) Who rules the market - Contractors, Clients or Agents?

4) Is it just a question of supply or demand?

5) Is it viable in the long term?

3) No one party really, during a boom contracts have more power while during a downturn clients do. Most agents run around in the middle trying to talk up one side while talking down the other and reverse also.
4) More of a perception of the current supply and demand
5) The IT contracting market is still very immature in it's methods of operation but i can see it matureing in the right ways if the various groups can pull together to bring an air of repectability and profesionalim to the table.

[boredsenseless]

... Also, if the client paid up front with no refund if they dump a contractor or terminate unfairly, they might well reconsider the lengths of their contracts, the terms and conditions a contractor would be working to and they wouldn't terminate unjustly ....

Hold on a moment aren't we supposed to be contractors, i.e. flexible resource, highly skilled and highly in demand professionals operating in business in a real and tangible way???

If so why do we care if we get binned by a client there are hundreds more!!!

Its these risks that mean we get rates higher than permie salaries.

If you want security and job protection jump back over the fence to permiedom.

[Denny]

Skipping the first 2 because the contractors will never agree with agencts anyway

repectability and profesionalim.

You'll never hack it as a typist or editor no matter how much power contractors have.