The Pricing Conundrum
You’ve just had an on-site visit from a traditional temp labor provider. The visit went well. The labor provider’s representatives were friendly and informative. They talked a lot about how their people could help you business achieve objectives X, Y, and Z. They described their processes in exacting detail.
It all sounds great. But now comes the question. The question that has tripped up so many labor providers in the past: “How do you price your services?”
Too often, these providers have only given you one option, one pricing model that “fits” for everything they do. Maybe it’s a pricing model that works for your business. Then again, maybe it isn’t. Either way, you’re limited to just hoping their pricing model jives with your company, and your goals.
Now, imagine that same on-site visit from nGROUP. You turn to us and ask the question: “How do you price your services?”
Then, something amazing happens.
“At nGROUP, we can use one of several pricing models, depending on what makes most sense for you, your structure, and the objectives you want to accomplish.”
nGROUP’s Pricing Models
nGROUP follows three basic approaches in our pricing arrangements:
- Cost-Per-Unit (Fixed-Cost Pricing)
- Cost-Plus Pricing
- Gain-Share Pricing
#1 – Cost-Per-Unit
Cost-Per-Unit pricing (CPU, or fixed-cost pricing) is what we recommend for our clients as the most advantageous model. Put simply, a cost-per-unit model sees nGROUP getting compensated a fixed price for each unit of finished goods produced.
CPU can be inclusive of direct and indirect labor costs involved in the production process, when appropriate. When it is, all services from recruiting and retention, to management and our tech-enhanced insights — are accounted for in one fixed price. Sometimes indirect costs are calculated separately, depending on the needs of the business, but we always strive to have a straightforward fixed price when doing CPU.
That price is determined primarily through three factors:
- Process: The complexity of each process, especially the amount of handling required, is a key factor in CPU pricing.
- Volume: Higher-volume production lines see their costs spread across a greater amount of finished goods, thus lowering the individual unit price.
- Compensation: The degree of specialization required — and, thus, the compensation levels paid out — has a significant impact on CPU.
CPU is great for our clients because it not only allows for significant cost savings, but it also makes budgeting for labor expenses much easier and more predictable. Simply multiply the number of finished goods you expect to produce by each good’s per-unit cost, and you’ll know what kind of labor costs you should expect to incur.
nGROUP has staffed and managed Optoro’s Tennessee facility for several years, allowing this reverse logistics giant to take on more clients and grow rapidly without having to worry about labor management. A key part of that success has been CPU. Read more about how Optoro has increased productivity and reduced costs with nGROUP’s model here.
#2 – Cost-Plus Pricing
This is the traditional pricing model for temp labor. In a cost-plus arrangement, the labor provider is compensated based on the number of tasks (or “transactions”) performed by their people within a prescribed billing period.
Cost-plus pricing has the benefit of being relatively simple to set up and start using. One of this model’s main drawbacks, however, is that it does not necessarily correlate directly to production. Sometimes, this cost-plus model can lead other labor providers into what we’ve termed The Activity Trap.
nGROUP has had the privilege of partnering with Expeditors for over 10 years, staffing their operation in Norfolk, VA. For many years, we’ve had a cost plus model, but in recent months, we’ve been migrating the receiving department of that facility to cost-per-unit (CPU) to provide even greater value to Expeditors. Read how Expeditors achieved more through our partnership at this link.
#3 – Gain-Share
Gain-share pricing is a model that encourages the ultimate investment in one another’s success.
In a gain-share relationship, nGROUP proposes specific, measurable benefits that our services will provide to your company. For compensation, nGROUP is rewarded based upon how well our work actually delivers on those promises.
We use gain-share models as the ultimate example of our “vested partnerships.” As we like to say it, nGROUP has skin in the game. What that means is we have staked not only our name and reputation, but also our very livelihood on how well we can help your operation achieve new levels of success.
One example of a gain-share relationship comes from our work with Macy’s. The retail giant entered into a partnership with nGROUP in 2019, starting with a seasonal pop up. Since that time, we’ve served several facilities and divisions of Macy’s, and gain share pricing has been a part of that partnership. Read more about Macy’s initial engagement with nGROUP and how they saved $1M in peak season while skyrocketing productivity.
What Pricing Model Makes Sense for Your Company?
The answer to that question is simply this: the model that brings you the greatest number of benefits, with the smallest amount of drawbacks. At nGROUP, we know we can help you find the most advantageous pricing model because we leverage engineering analysis to understand your operations and processes. We look for opportunities to improve, and we price our services based on what is most advantageous to both parties.
When a traditional labor provider spells out their services, talks up their ability to help, but then disappoints with a rigid, unworkable pricing structure, it can be a deflating moment. After all, the reason you sought out the provider in the first place is because you’re facing significant labor challenges.
nGROUP keeps that crushing disappointment at bay by offering flexible, custom-built solutions — and pricing them in a way that really makes sense for you.
Our engagement may even start with a “cost plus” model, but we try to move clients to cost per unit pricing as quickly as possible so that you can have the benefits of predictable lower costs, and higher productivity that we love to deliver. We also combine different pricing models for the same client, depending on how the solution has been structured. Our work with Carparts.com is one example of the flexible pricing nGROUP offers.
No matter what, nGROUP’s objective with our pricing models is the same as our objective for our services: making your labor-related headaches disappear. Convenient and appropriate pricing structures are just one more way we make that happen.