Staffing and outsourcing economics: the spread, billable hours and the cost of churn
What one temp worker earns an agency in a week, why a 3 percent rate cut can wipe out the profit, how a contact centre makes money, and what lower call volumes do to it.
Industry brief, with a one-minute summary: Staffing and outsourcingKey takeaways
- In temp staffing, almost every dollar of revenue is someone's pay.
- A permanent placement at 20 percent of a USD 60,000 salary brings a USD 12,000 fee, almost all of it gross profit.
- The client pays for billable hours; the firm pays for all hours. Every point of billable share lost is revenue lost with no cost saved, like an empty airline seat.
Key idea
In temp staffing, almost every dollar of revenue is someone's pay. Gross profit is the thin spread on top, and operating profit is the thin slice of that spread left after recruiters and branches are paid. So small changes in the bill rate, in pay, or in employer taxes swing profit a lot. In outsourcing, the client pays for billable hours while the firm pays for every hour its agents are at work, so the share of paid hours that can be billed decides the margin.
Worked case
One temp worker for one week, and what a 3 percent rate cut does
The prompt
BrightShift Staffing (a fictional agency in Texas) places a warehouse worker with a client for a 40-hour week. It bills USD 30 an hour and pays the worker USD 20.50 an hour. Employer taxes, insurance and benefits add 18 percent to pay. Recruiters, the branch, sales and systems cost about 16 percent of revenue. What are the agency's gross profit, gross margin and operating profit for the week? The client then asks for a 3 percent lower bill rate. What is left?
The structure
- Operating profit = bill rate x hours, minus pay, minus employer costs, minus branch and staff costs
- Revenue = bill rate x hours
- Gross profit = revenue minus pay minus employer costs
- Operating profit = gross profit minus branch, recruiter, sales and system costs
- Test the change: a lower bill rate with the same pay and costs
Working it through
1. Revenue for the week
40 hours at USD 30.
Revenue (USD):30 × 40 = 1,2002. Worker's pay
40 hours at USD 20.50.
Pay (USD):20.5 × 40 = 8203. Employer costs
18 percent on top of pay.
Employer costs (USD):820 × 0.18 = 1484. Gross profit
Revenue minus pay and employer costs.
Gross profit (USD):1,200 - 820 - 147.6 = 2325. Gross margin
Gross profit over revenue.
Gross margin (fraction):232.4 ÷ 1,200 = 0.19376. Operating profit
Minus 16 percent of revenue for recruiters, the branch, sales and systems.
Operating profit (USD):232.4 - 1,200 × 0.16 = 40.47. Operating profit after a 3 percent rate cut
Revenue falls to USD 1,164; pay, employer costs and the USD 192 of branch costs do not change.
Operating profit after the cut (USD):30 × 0.97 × 40 - 820 - 147.6 - 192 = 4.4
The recommendation
BrightShift should refuse a straight 3 percent cut, because it would remove about 90 percent of the profit on this worker, from USD 40.40 to USD 4.40 a week. First, the whole USD 36 cut comes off a gross profit of only USD 232.40, since pay and employer costs do not change. Second, the agency's 19 percent gross margin and 3 percent operating margin are close to what the large agencies report, so there is no hidden cushion. The risk is losing the client to a cheaper agency. As a next step, offer a lower rate only for more volume or a longer contract, which spreads branch costs over more hours.
Risks: Minimum wage or payroll tax rises squeeze the same spread from the other side; Clients can move the work to their own staff or to a shift app.
A permanent placement at 20 percent of a USD 60,000 salary brings a USD 12,000 fee, almost all of it gross profit. That is as much gross profit as about 52 weeks of the temp in the example. When companies stop hiring permanent staff, staffing firms lose their highest-margin income first: ManpowerGroup said lower permanent recruitment was one of the two main reasons its gross margin fell in 2025, alongside a shift towards large clients on thinner staffing margins.
A recruiter in Bengaluru places a software engineer at a salary of INR 18 lakh (INR 1,800,000) a year, for a fee of 20 percent of first-year salary. What is the fee, in INR?
Contact centre economics
Worked case
A contact centre in Manila: billable hours, profit, and what 30 percent fewer calls do
The prompt
Harbour CX (a fictional outsourcing firm in the Philippines) runs a 500-agent customer service team for a bank. Each agent is paid for 2,000 hours a year, at a cost of USD 4.50 an hour including benefits, and 85 percent of paid hours are billable (the rest go on training, meetings and breaks). The bank pays USD 12 per billable hour. Supervisors, the site, IT and recruiting cost USD 3.6 million a year. What are revenue, profit and margin? Then the bank adds an AI assistant that cuts calls by 30 percent, and Harbour CX cuts agents to match. What is profit if the site and support costs stay the same?
The structure
- Profit = billable hours x price per hour, minus agent cost, minus site and support costs
- Billable hours = agents x paid hours x billable share
- Agent cost = agents x paid hours x cost per hour
- Site and support costs are mostly fixed in the short run
- Test the change: 30 percent fewer hours and agents, same fixed costs
Working it through
1. Billable hours
500 agents, 2,000 paid hours each, 85 percent billable.
Billable hours a year:500 × 2,000 × 0.85 = 850,0002. Revenue
850,000 hours at USD 12.
Revenue (USD):850,000 × 12 = 10,200,0003. Agent cost
1,000,000 paid hours at USD 4.50.
Agent cost (USD):500 × 2,000 × 4.5 = 4,500,0004. Operating profit
Revenue minus agent cost minus USD 3.6 million of site and support costs.
Operating profit (USD):10,200,000 - 4,500,000 - 3,600,000 = 2,100,0005. Operating margin
Profit over revenue.
Operating margin (fraction):2,100,000 ÷ 10,200,000 = 0.20596. Profit with 30 percent fewer hours
Revenue and agent cost both fall 30 percent; the USD 3.6 million does not.
Operating profit after the fall (USD):10,200,000 × 0.7 - 4,500,000 × 0.7 - 3,600,000 = 390,000
The recommendation
Harbour CX should change how it is paid before volumes fall, because a 30 percent drop in calls would cut its profit by over 80 percent, from USD 2.1 million to USD 0.39 million, even after cutting agents. First, the site, supervisors and IT cost the same with fewer agents, so the margin falls from about 21 percent to about 5 percent. Second, under hourly pricing every call the AI handles is revenue lost. The risk is that the bank moves all simple calls to AI and keeps only the hardest ones with people. As a next step, offer to run the AI assistant itself and be paid per resolved query, and move spare agents to other clients or to work such as checking AI answers.
Risks: Attrition: replacing an agent means recruiting and training costs and weeks of lower productivity; Clients may build their own centres in India or the Philippines instead of outsourcing.
An online work platform has USD 50 million of payments between clients and freelancers in a year and keeps 18.7 percent as its take rate. What is its revenue, in USD million?
A contact centre's agents spend more time in training and waiting between calls, so the billable share of paid hours falls from 85 to 75 percent. What happens to profit?
Sources for this lesson (5)
- Recognized public explanations of case-interview concepts and terms
- The Adecco Group, Q4 and full year 2025 results, 25 February 2026
- Randstad, "FY 2025: perform and transform" full year results, 11 February 2026
- ManpowerGroup, annual report on Form 10-K for 2025 (gross profit margin down 60 basis points: 25 from permanent recruitment, 25 from staffing mix, 10 from outplacement)
- Upwork, annual report on Form 10-K for 2025 (gross services volume of USD 4.0 billion)
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