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The Agency Low-down: Part 2 - Rates and margins...
by Richard Powell at 07:00 09/01/03 (News on Agents)
In part two of our three-part series examining IT agencies' placement prospects in 2003, Shout99.com investigates the state of rates and margins...
Related articles:
  • The Agency Low-down: Part 1 - Where the work is...
  • Last April, Shout99.com attended a resourcing conference at the London Institute of Directors and reported on Charles Walker, an industry commentator, urging agencies to "put margins up, dump slow business and 'get tough' with clients you might be subsidising by operating at too low a rate."

    Almost a year on, Mr Walker could be forgiven for attempting to talk up the fight to protect recruiters' most vulnerable assets - their margins and rates - in a depressed market where both continue to remain a touchy subject with clients in 2003.

    Continual lowering of margins, however, is hitting recruiters hardest.

    A recruitment consultant at Best International, said: "Rates for us are down on January 2002 but have been holding steady since last September.

    "Our margins are also down on last year but still enough to keep us going for the time being."

    The relationship between margins and rates has never been closer, many agents reported.

    Henry Lee from Sentinel IT, said: "Rates have bottomed out compared to the early days, and we're still in a continuation of falls from 2002. They're around 50 per cent of what they were during the boom. Where a Java programmer used to be on 80 per hour, he's now on 40 per hour.

    "Rates are as flat as a pancake"
    Stuart Ferguson, Optimum IT Plc.
    "The highest rates cuts have come at the top end of the spectrum, with the worst hit being the artificially inflated rates of some of the freelance programmers who jumped onto the bandwagon at the peak of the dot com boom."

    Mr Lee said his margins had been much the same over the past three years, but believed the skill of holding margins level is more down to the skill of the salesman than the outside market.

    Andrew Pike, Corporate Accounts Manager at Generic Software, estimated his rates for roles in demand, including: Support, Legacy and Testing; had fallen 10-30 per cent over the last 24-months.

    "Margins are probably about the same," he added, "and much lower than their peak in the boom. Clients are also insisting we operate at six, seven, eight per cent, which really doesn't help us much either."

    Some agency directors went into great detail when describing the pressures they are now under with the sharp pan-European fall in rates and margins.

    Stuart Ferguson, Managing Director of Optimum IT Plc., said: "Rates are as flat as a pancake. In Europe, our freelance rates are about 250-300 Euros per day. In the UK this is about 300 per day, both of these figures are considerably down on last year. Price per head has also dropped around 25 per cent from 2,800 to 2,100 over the past 12 months. In Europe, we've seen a fall from 2,300 Euros down to 2,200 Euros in price per head, but this has traditionally been quite low because much of the work has been for the European Commission, which pays tight rates.

    "In terms of our margins, they were at 16.8 per cent 12 months ago - now they are at 14.7 per cent. In the City, this has fallen from 15.4 per cent to 12.5 per cent for the same period. This has mainly been due to rates cuts and redundancies at the big banks, like: Credit Suisse First Boston (CSFB), Deutsche Bank and Citibank."

    Shout99.com has reported on all major rates cuts since CSFB started what would became a popular trend amongst city firms from July 2001 onwards.

    Since then the list has grown to encompass cuts for freelancers of between 10-30 per cent at: Pfizer, GSK, Barclays, BT, IBM, Ericsson, CitiGroup and most recently Deutsche Bank (amongst others).

    David Sen, Senior Consultant for Development at Paragon IT, added: "Rates are still lees than they were 12 months ago, but then rates were high then to attract candidates. Now they are more client-driven and there are many more candidates available now than there were previously, so rates have become more realistic. Our margins are the same, and are driven by what the clients are willing to pay whilst there are so many freelancers looking for work."

    Last April, Joe Devito, a consultant with recruitment agency, Aston Carter, illustrated just how many freelancers were looking for work in practical terms, when he told Shout99.com: "There are so many contractors out there. I put out one project this morning at 10 am and within hours I've had 120 applications; 95 per cent of them met the relevant criteria."

    David Bloxham, Operations Director at GCS Computer Recruitment Services, said: "Rates have been forced down in the last 18 months and they're probably 75 per cent down on their peak during the boom. .Net projects are starting to pull rates up at the moment because they're in high demand; SAP Programmers in the City can earn good money at the moment and rarer skills, like Oracle Programming, continue do well. Normal skills like Desktop and VBE continue to remain depressed. There's such a high level of supply at the moment that until this decreases, rates will continue to stay low.

    "Generally, our margins are between 10 and 20 per cent, depending on the client we're dealing with and the length of the contract we have with them."

    In part three of our 'Low-down series', to be published tomorrow, agencies talk about their outlook for 2003.

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    Richard Powell, Shout99.com 2003

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