Staffing services can sometimes feel like a black box. You’re billed one rate, the person doing the work is paid another, and what happens in between isn’t always transparent. But once you understand how staffing firms generate revenue and what you’re actually paying for, you gain the insight to budget more effectively, negotiate confidently, and build a more strategic workforce model.
Let’s take a closer look at the two primary staffing models and how each one creates value and profit.
How do staffing firms make money from contract staffing?
In the contract or temporary staffing model, you pay an hourly rate for a professional contractor. This bill rate includes the contractor’s wages plus a markup. The markup is where the staffing firm generates its revenue. However, that markup doesn’t go straight to profit. It typically covers:
- Payroll taxes and statutory costs (FICA, FUTA, SUTA, unemployment, etc.)
- Benefits (health insurance, PTO, holiday pay)
- Workers’ compensation and liability insurance
- Recruiting, onboarding, and account management
- Profit margin (what’s left after costs)
Here’s an example: You hire an HR Coordinator through a staffing firm and pay $40.65/hour for the total bill rate. The HR Coordinator is paid $28.63/hour. That leaves a $12.02/hour markup, with $11.75 in operating costs and a $0.27 profit margin. Below is a comparison of how these costs stack up against internally hiring on your own (according to the Bureau of Labor Statistics averages), which might break down like this:
That means the staffing firm’s actual profit is just 0.66% of the total bill rate. Even with the same hourly wage, managing your own hiring brings hidden costs that quickly add up. By the time you factor in benefits, taxes, admin overhead, compliance risk, and HR workload, the true hourly cost of a direct hire often exceeds $50.00 per hour.
With a staffing partner, you get qualified talent, risk protection, and streamlined hiring all built into one predictable rate.
How do staffing firms make money from direct hire placements?
In a direct hire engagement, you’re charged a one-time placement fee after a successful full-time hire. This fee typically ranges from 20% to 30% of the candidate’s first-year salary and serves as the staffing firm’s primary revenue source for the search.
Just like in contract staffing, most of that revenue covers the cost of delivering the service, including:
- Recruiter salaries and commissions
- Sourcing tools, job ads, and candidate databases
- Client relationship management and offer negotiation
- Compliance support and onboarding guidance
- A modest profit margin
For example, you hire a Project Manager at a salary of $100,000. A 25% placement fee equals $25,000. Behind the scenes, the cost structure might look like this:
That means the staffing firm earns a 20% margin on the placement fee, or just 5% of the candidate’s first-year salary, after delivering end-to-end recruitment and managing the full candidate experience on your behalf.
Why does this matter to you as a client?
Because knowing what you’re paying for gives you leverage, not to squeeze, but to strategize smarter:
- You’ll negotiate with insight, not assumptions
- You can compare providers on value, not just price
- You’ll spot red flags if pricing is too low to be sustainable
Most importantly, you’ll be better equipped to build long-term partnerships with staffing firms that operate transparently and ethically – the kind of partners who invest in your success because they’re structured to do so.
When done right, staffing isn’t a cost center; it’s a flexible and efficient way to grow your team without overextending internal resources. And understanding the profit model behind the services helps you harness that power with confidence.
Want to see how this plays out in real-world numbers? Explore our client case studies to learn how DAHL has helped clients optimize spend, improve quality, and scale with purpose. Or, if you’re interested in learning more about how pricing functions when you work with a staffing partner, discover more resources in our Learning Center.