The Love Hate Relationship With The MSP Model in the Personnel Staffing Industry

The Love Hate Relationship With The MSP Model in the Personnel Staffing Industry

The MSP (Master Services Provider) penetration in U.S. companies that have over 1,000 employees has grown to 60% since 2014 according to Staffing Industry Analysts.  The benefits to the client include:

  • Greater exposure to candidates from larger talent pools
  • Operational efficiencies from reducing multiple vendor reconciliations to one
  • More uniform compliance for candidate proposals
  • Potential for greater leverage in pricing structures

From the vendor side, there are also benefits to becoming a part of an MSP’s network:

  • Access to hundreds of clients without the expense of putting “boots on the ground” in target markets
  • Pre-negotiated billing rates for quicker candidate pay package calculations
  • Clearly defined requirements for candidate proposals

Despite the positives of the MSP growth, many staffing firms are decrying their impact. Some of these complaints are as follows:

  • Fees have grown to as much as 5% in some verticals
  • Unlike auditable payroll burdens, the 5% is of revenue, not of pay
  • A company running a 15% EBITDA for a non MSP account will find that same deal in an MSP account taking 33% of that net income with a fee as high as 5%
  • If the MSP provider is also a competitor, the 5% fee may reduce the pay rate to the candidate, potentially driving them to the competitor that may not be paying the 5% fee
  • Many agencies have complained that the MSP uses a “Tier” system that may lock out but the largest temp firms. For those up and coming companies, this can become a barrier to entry
  • Agencies believe when a competitor owns the MSP, there is an inherent desire to “poach” candidates

Regardless the possible downside of MSPs, they will be a part of the landscape for the near future.