The Difference Between VMS and MSP: Their Role in a Changing Staffing Market
By Satyen Chokshi, CEO & Founder, TalentRupt.
Organizations have transformed how they manage their staffing needs over the years, in particular, their contingent workforce with many embracing outsourcing workers to remain competitive. Outsourcing is where the terms MSP (Managed Service Provider) and VMS (Vendor Manager System) comes into play.
Here at PGC we support staffing agencies with engaging contract workers and have witnessed a growing number of companies seeking to expand into MSP programs. PGC’s Catriona O’Kane, VP of Strategic Growth, sat down with Satyen Chokshi, founder and CEO of TalentRupt, to understand the opportunities and the challenges of VMS' and MSPs.
Satyen has over 15 years’ experience in the talent management and the acquisition space and has been following this shift, navigating it himself and observing the market. See below his expert answers on the difference between VMS' and MSPs and their role in staffing.
What is the difference between a VMS and MSP?
Vendor Management System (VMS)
A VMS is the software that the client company licenses to enable the MSP to run the contingent worker program by allowing all the transactions to happen online. This allows the MSP to manage the workforce management process seamlessly.
If you are working with an internal management program and their VMS, you work directly with the program manager. If you have an MSP and VMS, you still work directly with the program manager.
Managed Service Provider (MSP)
An MSP is an outsourced agency that manages the contingent worker program of a client company (usually a Fortune 100 company) by managing its preferred staffing agencies. They have a team which sources and manages temporary workers from their staffing agencies.
MSPs and VMSs are clearly hot topics in the staffing world at the moment, what advice would you give to a staffing firm considering working with an MSP?
Working with an MSP and VMS has both advantages and disadvantages. Satyen's personal opinion is that VMSs often help drive top line growth, but with this comes immense competition and a constant drive to deliver candidates at a record pace.
For example, if enterprises are adding 20-30 vendors to a program this calls for innovative recruiting strategies and they must find a cost-effective way to stay competitive.
Staffing agencies who decide to work with a VMS may look to outsource certain elements such as recruiting to help them produce quality candidates in a shot space of time. Achieving a successful performance with one VMS can certainly open up doors with other VMS and also help staffing agencies expand into the various programs the VMS is involved with.
VMSs will charge staffing agencies to be part of their program and margins are often capped at a lower rate.
What does the average cost for a recruiter in NY include?
Cost is an important factor for staffing agencies as they try to become more efficient and competitive. Recruiting costs are becoming dramatically increasing becoming extremely expensive. For example, the cost of a recruiter only in most metropolitan cities will cost a staffing agency between $7-8k a month.
A lot of agencies will consider the base salary as the cost of the recruiter. However, Satyen views the cost of a recruiter in a different light which includes the costs an agency occurs with that recruiter: base salary, benefits, vacation, access to job boards, commissions, infrastructure costs. When all these costs are calculate, the cost keeps stacking up, averaging out at $7-8k per month.
What are the challenges of working with an MSP/VMS and how do businesses prepare for these?
Working with a VMS presents a great opportunity, however it comes at a big price. The three main challenges are:
Competition - each program typically will have 30-40 vendors working on a program.
Lower margins - day by day we are witnessing margins dwindling, clients are demanding rebates at various spend thresholds, tenure discounts, early payment discount, and an increase in contractor benefits as required by law plus much more.
Once you add all this up, the margins for a staffing agency become very tight. Therefore, if you choose to venture into working with MSPs, you should be aware that it's a volume game and often agencies will off-shore their recruitment through an RPO as this allows high volume candidates quickly at a lower cost.
Keep in mind that not all programs are the same and you need to evaluate which ones make the most sense to support you as a business.
Lastly, the cost of doing business is very high, since the payment terms for a lot of these VMS programs is 60-90 days. This forces agencies to float heavy payroll and front load the cost.
When looking at terms with MSPs what do you see companies most commonly discuss?
Typically, most agencies will first see what kind of program it is rate card vs margins. If it's a rate card driven program, it means that there is a set bill rate given and the agency can put its percentage on the candidates pay rate as long as it’s under the bill rate.
Secondly, payment terms and discounts are often looked at very closely (Needless to say, better payment terms means fewer discounts/refunds to give back and the better the program).
Thirdly, we often hear agencies talk about an account being a “touch account” or not, which means if they are able to have any contact with the hiring manager. Many VMS’ will prohibit you from having any conversations with the hiring manager, making it extremely tough to leverage relationships.
Lastly, agencies will often see how big the program is from a funding perspective, the larger the spend the enterprise has, the more opportunity it will present.
What are your top 3 tips for working with an MSP?
We have witnessed businesses operations scale when working with an MSP model, it can be a highly lucrative source of business if structured correctly.
Leverage an RPO - One of the fastest and most economic ways of structuring an MSP correctly is leveraging an offshore RPO. Using an RPO can help a staffing agency hire faster while saving costs.
Make sure your process is lean and agile - Having an agile process in place quickly allows recruiters to submit quality candidates. Timing is everything when playing the VMS game.
Closely examine the ROI on the MSP - sometimes it may be more beneficial to walk away from the program if it’s not generating enough revenue. Costs will rack up quickly, so it’s very important to pay very close attention to the MSP program and the return it’s generating.
We hope this information on VMS' and MSPs from Satyen Chokshi, founder and CEO of TalentRupt was useful. TalentRupt is an RPO that assists staffing agencies in sourcing candidates through an outsourced – offshore model.
PGC is a workforce management platform and supports agencies in employing contract workers across the U.S., enabling agencies to place a worker in any state with the payroll and not have to worry about the back office processes. We handle the employment and compliance and are powered by out tech Precision.
If you’re looking at engaging with a VMS and MSP, our team are happy to give you more information and chat about our solutions. Get in contact here.
Disclaimer: All information written here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.