The new economics of contingent staffing.

The staffing industry has long operated on a complex economic model that often leaves clients wondering about high costs. Much like an iceberg, the visible part—the final placement and the associated fee—is just a small fraction of the total effort. Beneath the surface lies a vast amount of work, from sourcing and screening to compliance and overhead, that goes unpaid when a position isn’t filled. This traditional model is inefficient and costly for everyone involved.

Fortunately, a new wave of technology is reshaping the landscape. Advanced automation and artificial intelligence (AI) are addressing the core economic challenges of staffing, paving the way for a more efficient, transparent, and cost-effective future. This shift allows hiring organizations to access top talent faster and at a lower cost, while innovative agencies can deliver superior results.

This post will explore the broken economics of traditional staffing, dive into the technology that’s fixing it, and show you what to look for in a modern staffing partner.

The broken economics of staffing

For years, the staffing industry has been stuck in a cycle of inefficiency. The entire business model is built on a contingent basis, meaning agencies only get paid for successful placements. While this sounds good for clients, it creates a system where the costs of all the unsuccessful work must be covered by the fees from the successful ones.

Let’s delve into the challenges of this traditional model and provide a breakdown of the hidden costs it entails.

Key challenges of the traditional model

The traditional staffing model faces significant challenges that hinder efficiency and scalability.

• High overhead costs: Agencies often bear substantial statutory costs and overhead, including payroll taxes, workers’ compensation, insurance, and compliance with complex regulations for managing a contingent workforce. These are essential expenses, not profits, yet many clients overlook them.
• Labor-intensive processes: The industry is heavily reliant on manual recruiter efforts to source, screen, and engage candidates. This people-heavy approach is time-consuming, difficult to scale, and often inefficient. 
• Specialization challenges: Agencies face high costs and challenges in maintaining expertise across industries and niche roles, requiring specialized recruiters for fields like health care, finance, software engineering, and positions such as Web Developers or Augmented Reality Designers.
• Geographic and market expansion: Expanding into new markets presents additional challenges. Setting up physical offices, hiring local staff, and managing cultural and language differences significantly increase costs. This complexity limits traditional agencies’ ability to offer global solutions and access diverse talent pools, creating inefficiencies and driving up expenses.

These obstacles make it difficult for traditional staffing models to adapt quickly, provide cost-effective solutions, and meet the growing demands of a global, specialized workforce.

The iceberg: Unveiling the hidden costs of staffing

Staffing economics are best illustrated by an iceberg. As our client, you usually see just the top 20% of our work—submitting resumes, arranging interviews, and celebrating successful placements. What’s hidden below the surface is the remaining 80%: the countless hours we invest that never result in a hire.

Here’s the reality: recruiters spend up to 70% of their time on repetitive, manual tasks, like sourcing, screening, and following up with candidates. And because our industry is built on a contingent model, about 80% of these efforts don’t lead to a placement at all. Only 20% of the work we do is truly visible to you—the part that results in actual hires. Yet, the unseen 80% still comes at a cost, and those expenses get baked into the bill rate for every successful placement. That’s why traditional staffing can seem so expensive: you’re not just paying for what you see, you’re also covering the hidden work required to get even a single role filled.

Understanding this dynamic can help you see exactly where your money goes—and why greater transparency and efficiency matter.

Breaking down the iceberg: The three pillars of a bill rate

To really understand staffing costs, let’s look at the core components that make up your bill rate:

1. Pay Rate:
   • This is the portion that goes straight to the talent—their hourly wage. Our aim is always to recommend pay rates that are both competitive for the market and fair to employers and employees alike.
   • We use robust data and industry insights, considering each role’s requirements, prevailing pay trends, experience, and location, so you attract and retain great candidates at the right cost.
2. Burden:
   • This covers all mandatory employer costs, including federal and state payroll taxes (FICA, FUTA, SUTA), workers’ compensation, paid sick leave (where required), health insurance (when applicable), and other statutory programs. These are non-negotiable expenses that come with every hire. 
   • Additional benefits like paid time off, retirement contributions, flexible spending accounts, and supplementary insurance plans may also be offered to attract and retain talent, and these costs also make up the burden.
3. Gross Margin (Operational Cost and Profit):
   • This is the agency’s fee, covering operating expenses and profit. In traditional models, gross margin can be inflated to offset the cost of manual recruiter time and all the unplaced work—making this a hidden area of inefficiency in old-school staffing.

The modern solution: How technology changes everything

Today, AI and automation are transforming the economics of staffing, but not all technology is created equal. Many agencies use off-the-shelf staffing tools to handle basic tasks, but real innovation is driven by firms with deep engineering capabilities. This commitment to building proprietary solutions goes beyond simple efficiency gains to fundamentally change how talent are sourced, matched, and hired.

For example, at Skill, we’ve developed our own patented AI models. Our machine-matching technology goes beyond matching resumes to job descriptions, analyzing the full picture of both the candidate and the role to produce significantly better results than generic keyword searches or off-the-shelf AI.

This dedication to cutting-edge, proprietary technology not only provides substantial benefits to clients but also eliminates the issue of recruiters spending 70% of their time on repetitive tasks:

• A more competitive gross margin: A more competitive gross margin: By engineering their own systems, agencies can achieve greater operational efficiency and share those cost savings with clients through more transparent and competitive pricing. This approach not only shifts the cost structure from a high-variable to a high-fixed model—directly benefiting your bottom line—but also results in a 30% lower overall cost per hire, further enhancing value for clients.
• Faster, more efficient hires: Advanced technology allows agencies to fill more roles with greater speed, ensuring you get the talent you need when you need it and solving the costly empty seat problem. By automating sourcing and matching, a modern agency can work on more roles with greater efficiency. At Skill, for example, our proprietary algorithms are 12 times faster at matching talent to roles.
• Superior candidate quality: Advanced technology enables agencies to fill roles with unparalleled precision, ranking candidate quality 7x more effectively than traditional methods. Proprietary algorithms go beyond manual effort and off-the-shelf tools by analyzing critical data to align talent with roles more accurately. This ensures that you get the right candidates exactly when you need them, keeping your projects on track and resolving the costly challenge of unfilled positions.
• A smarter partnership: You gain access to a modern, data-driven approach where a firm’s engineering expertise and human insight combine to deliver unmatched quality, efficiency, and value.

Making an informed choice

The future of contingent staffing isn’t about finding the cheapest vendor. It’s about finding the smartest one. A true partner leverages technology to optimize all three pillars of the bill rate—ensuring talent are paid competitively, the burden is managed efficiently, and the gross margin reflects operational excellence, not waste.

The contingent labor landscape is changing, and new winners are emerging—those making investments in leveraging technology and building proprietary solutions. This strategic shift delivers efficiency, transparency, and a powerful competitive advantage. By moving away from inefficiency, businesses can start investing in outcomes.

Empower your recruiting with better, faster, and more cost-efficient solutions from Skill. As a next-generation staffing agency, we harness machine-matching technology and AI-powered recruiting to connect you with top talent and drive your business forward. Get in touch to discuss how we can solve your unique hiring challenges.