8 Ways to Measure and Control Your Contingent Labor Program Costs

This is the third in a 4-part series designed to help contingent program managers understand and implement analytics to support the QECR Performance Framework developed by Staffing Industry Analysts.

The QECR framework is designed to help define and measure the performance of contingent worker programs across four dimensions—quality, efficiency, cost, and risk. Using the framework, you can get a firm grasp on the current state of your contingent labor program and drive improvement toward future goals.

For procurement professionals, cost savings and cost avoidance areas are always top priority.

And although HR departments are seeing an increase role in managing contingent labor programs, at most companies, the program is still owned primarily by procurement.

Regardless of program ownership, many aspects of managing non-employee labor can impact program spend, and program managers face common finance-related challenges, such as

A vendor management system (VMS) can help measure program costs, but to really gain control, leaders and managers need to know what to measure in order to make cost-conscious, data-driven decisions.

Using the 8 metrics below, you can analyze your spend allocation to determine smart, practical ways to gain greater control over contingent labor program costs overall.

1. Review and Standardize Vendor Rates

Perhaps the most problematic trend currently facing contingent labor programs is a lack of consistent rates across vendors. Setting rates by vendor isn’t just inefficient—it can easily result in your organization overpaying for labor.

By analyzing data on vendor rates across your program, you can establish a standard mark-up. This is the first step toward driving down your overall program costs.

Tip: If you use some vendors more than others, standardize mark-up rates based on utilization—with one mark-up for top-tier vendors and another for your second tier.

2. Analyze Overtime Usage

Compliance with overtime pay policies—paying workers time and a half—can become costly as it multiplies. Tracking vendor overtime in your VMS or third party time-keeping system will enable you to identify trends in overtime usage.

Tip: Look for trends in overtime use across departments, managers, and vendors to help determine where adjustments are needed. For example, high use of overtime in one department or by one manager may signal a need to reallocate work to another contractor or an FTE.

CTA banner on gaining greater visibility

3. Develop Consistent Bill Rates

Your bill rates are perhaps the most direct and impactful measure of contingent program costs. To better understand bill rates across your program, start by measuring two key areas—rate consistency across your organization and the market standard.

Excessive fluctuation between bill rates by manager—especially those in the same department—may indicate uncontrolled spend and a need to adjust the rate’s maximum range.

To help minimize cost disparities, compare your rates to the market standard in your location. Benchmarked rate data along with normalized rates across managers will help establish parameters around your bill rates.

Tip: Managed service providers (MSPs) and shared managed services partners can help you benchmark your rates against the industry standard.

4. Consolidate Budget Tracking

Visibility of your organization’s financial data is a sure, tangible way you can measure your budget to actuals. By consolidating data into a single location, you’re able to easily track your overall budget and amount that’s been consumed.

This level of transparency gives you deeper knowledge of and control over how your program spend is allocated.

Tip: If using a VMS to manage your contingent labor program, activate budget warnings to receive real-time alerts about the remaining budget percentage for your resources.

5. Negotiate Discounts

By tracking and reviewing the allocation of program spend across your vendor population, you can prepare for conversations about discounts with your vendors.

It’s common for staffing companies to offer discounts for for tenure, volume, overtime, and conversions. Solid data makes negotiation far easier.

Tip: While you want to save as much as possible, don’t tarnish supplier relationships by asking for too many discounts. So negotiate with your strategic goals in mind.

6. Manage Conversion Fees

As the labor market gets tighter, quality talent is becoming more difficult to source. So when you finally find the right candidate, you may be inclined to convert them quickly from temporary to full time. But this, as you know, incurs conversion fees, which can get costly.

Here again, data can help. By tracking conversions and fees, you can determine the most cost-effective time to convert a contractor.

Tip: Track dates and associated costs of converting contingent workers. Use logic in your reporting engine to calculate the waiting period for securing the lowest fee.

Trouble finding quality candidates? Get tips for measuring and improving quality across your contingent labor program.

7. Track and Address Trends in Replacements

Worker turnover can be one of the highest expenses in your program. Not only do you lose hard dollars in ongoing recruiting efforts, you lose valuable time and incur indirect costs to source, train, and onboard a new candidate to take over an incomplete project.

To reduce talent flight risk, look for trends in unsuccessful engagements across your vendors and managers, and adjust accordingly.

Tip: If you have a contractor who’s left prematurely, mark them as “do not rehire” within your system. This will prevent other managers from reengaging that worker down the road.

8. Forecast Your Spend

Based on your current contractor usage and trends from previous years, you can see

  • What you’re spending currently
  • How much of your projected budget you’ve spent or allocated to date
  • Remaining budget available.

With visibility into and across the real costs of your contingent labor program, you can forecast spend for the next month, quarter, or year.

Begin Your Journey for Program Savings

Financial control is necessary in any business process. And contingent workforce management is no exception.

Procurement, HR, program managers, and other stakeholders must approach cost-saving strategies with an eye for detail because even seemingly inconspicuous line items matter.

By using these tactical metrics to measure your program expenditures, you will gain insight into essential data to inform standards and budget controls for a more cost-effective contingent labor program.


Meet the Expert
Taylor Ramchandani – VP of Strategy

Taylor Ramchandani is responsible for the management and strategic planning of the VectorVMS vendor management system. Taylor is committed to client satisfaction and to ensuring VectorVMS technology meets the current and future needs of clients and managed service providers (MSPs). She uses market research and in-depth industry experience to create products and services that make extended workforce management efficient and intuitive. Taylor oversees product development, marketing, and business partnerships for VectorVMS and is responsible for driving innovation for contingent workforce management. Connect with her on LinkedIn.