Contracting Myths 2: You Can’t Make Enough to Justify the Effort

Is a few dollars an hour per contractor really worth chasing when one direct-hire fee can carry you for a month? In April 2010, that question was the second myth in our Contracting Myths series, and we answered it with a simple bit of math.

The 2010 example

The myth went like this: contract staffing doesn't generate enough money to make it worth the effort. Our response was that even one contractor can start a steady stream of income that helps cover your monthly business and personal expenses. And the more contractors you have, the more it adds up.

To show it, we used a hypothetical. Say you had 10 contractors working and earned $7.51 per hour on each one. That's $75.10 per hour across the group, or $12,992.30 a month at 173 working hours. Those figures were an illustration for 2010, not a benchmark, and your own margin will depend on your market and the roles you fill. What still matters is the shape of the example: small hourly margins, multiplied by people and hours, add up fast.

How to run your own numbers today

Before you take a contract order, work out what you'll actually keep on each hour worked. The pieces are the same for almost every placement:

• Bill rate. What your client pays per hour.
• Pay rate. What your contractor earns per hour.
• Employer costs. Payroll taxes, workers' comp, unemployment insurance, and any benefits that come with being the legal employer, plus your Employer of Record's fee if you use one.
• Your margin. Whatever is left of the bill rate after pay and employer costs.

Multiply your margin by the hours your contractor is expected to work, and you'll have a realistic picture of what the assignment is worth. Run it once for a 13-week project and again for a year-long one. The gap can be eye-opening, because contract revenue keeps coming for as long as the assignment runs.

Ask your EOR for a full cost breakdown before you quote a bill rate. When a provider is upfront about its fee, this takes five minutes. Hidden platform or setup charges turn it into guesswork.

Why recurring revenue matters more than the hourly figure

A direct-hire fee arrives once, and next month you start over at zero. Contract margin shows up every pay period for as long as your contractor is working. That predictability is where the value is. It can cover rent and software in a month when no perm deals close, and it gives you room to turn down a bad-fit search instead of taking it out of panic.

Contract placements can also lead to more fees later. If your client decides to hire the contractor directly, a well-written agreement can earn you a conversion fee on top of the hours already billed. And when an assignment goes well, clients often come back with the next order.

Another way to size it: compare your contract margin to what you'd net from adding another perm recruiter after their commission, benefits and overhead. A modest group of contractors can produce comparable profit without adding a person to your payroll. Assignments also tend to run longer than planned. A role scoped for a few months can stretch past a year, and the margin keeps coming in during the months when the placement needs little of your attention.

Getting started without building a back office

Most of the "effort" in this myth is employment administration: payroll, taxes, compliance, and benefits. An Employer of Record handles that as the legal employer of your contractor, so the work on your end stays close to a normal search. If you're worried contracting will pull you off your perm desk, read Contracting Myths 1 on time and direct-hire orders. And if you're not sure your clients even want contractors, Contracting Myths 3 covers client interest in contracting.

FoxHire works this way for recruiters in all 50 states, with no subscriptions or platform fees. Payroll funding is built in, so you aren't fronting wages while you wait for your client to pay. Start with one contractor, watch the hours add up, and decide from there.