Do Premium Recruiting Services Reduce Travel Nurse Pay?
Travel nurses often express concern that premium recruiting services like Indeed, LinkedIn and Monster are “hands in the pot” that ultimately reduce travel nursing pay. In this article, we’ll take a look at the pertinent business fundamentals to clarify what’s going on behind the scenes.
First, we need a little primer on a travel nursing company’s business metrics. Specifically, we’ll take a look at various metrics related to profit margins. With those metrics defined, we can have a detailed discussion about the key metric at play, “Customer Acquisition Cost (CAC)”.
Travel Nursing Company Revenue Metrics Overview
We’ve written extensively about the profit margins of travel nursing companies in other articles. Here, we’re just going to provide a general overview.
Travel Nursing Revenue
We’ll start with revenue. Travel nursing companies generate revenue by billing hospitals for a travel nurse’s time.
For example, let’s say a travel nurse completes a 13-week contract for 36 hours per week with a bill rate of $70 per hour. The agency receives $32,760 in revenue.
Travel Nursing Cost of Goods Sold
The “Cost of Goods Sold (COGS)” comes next. COGS “refers to the direct cost of producing the goods sold by a company.” As yucky as it sounds, travel nurses are the “goods” that travel nursing companies sell.
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For travel nursing companies, most COGS are related to the travel nurse’s pay package. However, the traveler doesn’t actually see some of these costs in their compensation. This causes a lot of confusion among travel nurses. You can review this article for a detailed breakdown of a travel nursing pay packages including all the COGS.
Travel Nursing Gross Profit
Once every cost associated with the travel nurse is deducted from the revenue, the agency is left with their “Gross Profit”. Publicly available information indicates that travel nursing companies operate with gross profit margins of between 20% and 27%.
However, don’t let this range fool you. Just because one company takes a lower gross profit doesn’t necessarily mean that they have higher pay packages. Again, you can review this article for a detailed explanation.
Let’s continue with the example we used above. If the agency receives $32,760 in revenue and has a gross profit margin of 23%, then their gross profit is $7,534.80 for that contract.
Travel Nursing SG&A, OpEx and Net Profit
The agency uses the gross profit to pay for all of their “Operating Expenses (OpEx)”. The operating expenses include things like rent, accounting expenses, legal expenses, sales expenses and marketing expenses. After they pay all of their operating expenses, they are left with their Net Profit.
Now, different companies track their gross profit in different ways. In the travel nursing industry, it’s quite common for companies to separate their gross profit into “Sales General and Administrative (SG&A)” expenses and Operating Expenses (OpEx).
For example, Staffing Industry Analysts’ 2017 Travel Nurse Benchmarking Survey found that the aggregate SG&A expense for travel nursing companies was 12.5% of revenue. Meanwhile, operating margin was 13.3% of revenue. Therefore, the aggregate gross margin for travel nursing companies was 25.8%.
Again, different companies track their gross profit in different ways. However, one thing is certain. Sales and marketing expenses come out of the agency’s gross profit. There is no scenario whereby an agency classifies their sales and marketing expenses as COGS.
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Why is this important? Well, the premium recruiting services we’re talking about in this article represent a sales and marketing expense.
As we discuss later in the article, given the contention that the costs of premium recruiting services reduce travel nursing pay, it is very important to know that these expenses come out of gross profit and not COGS.
Travel Nursing Customer Acquisition Cost – CAC
Now we can finally discuss the most important metric for this topic, Customer Acquisition Cost (CAC). CAC is a business metric that every industry uses.
As the name implies, CAC measures a business’s cost to acquire a single customer. Generally, you calculate CAC by adding ALL costs associated with sales and marketing over a defined period and dividing the total by the number of customers you acquired in that period.
In the travel nursing industry, travel nurses are the customers. At the same time, they are also employees of the travel nursing companies. Therefore, some travel nursing companies prefer to use the term “Cost per Hire (CPH)” instead of CAC.
Either way, the equation is roughly the same. The Society for Human Resource Management (SHRM) defines CPH as “Internal Costs + External Costs / Number of Hires in a Period.”
In SHRM’s definition, Internal Costs include things like the cost of recruiting staff and recruiter training. External Costs include things like advertising expenses, marketing expenses and employee referral bonuses.
The High Cost of Time
Perhaps the most important thing for us to know about CAC/CPH is that staff-cost is by far the single biggest cost variable in the equation. Therefore, the cost of Marketing Reps, Recruiters, Nurse Advocates, or whatever fancy name they’re coming up with these days, represents the lion’s share of CAC.
For example, agencies typically pay recruiters a base salary plus commission. In some cases, agencies pay recruiters a full salary with no commission. Contrary to popular opinion, a full-salary is often more expensive for the agency than salary-plus-commission depending on how productive the recruiter is.
According to SIA, travel nurse recruiters earn over $74,000 per year, so their time is not cheap. Therefore, agencies must ensure that their recruiters are getting the highest number of placements per unit of time.
Are There Free Travel Nurse Recruiting Services?
With that in mind, let’s discuss the idea of “free” recruiting services. Many who are concerned that premium recruiting services reduce travel nurse pay often assert that recruiters can just use Facebook or other social media services for free.
They contend that recruiters can post jobs in Facebook groups for free. Recruiters could also gain notoriety and trust by answering questions and engaging in group conversations. Recruiters can create and post videos and other content all for free.
While it’s true that Facebook does not charge a fee for these services, the simple fact is that all of these activities require a recruiter’s time. When it comes to human capital, time is money. Therefore, companies definitely incur a cost when their recruiters use social media to recruit candidates.
Determining the CAC of “Free” Travel Nurse Recruiting Services
Companies determine the cost of “free” services the same way they determine the cost of using premium services. They use the standard CAC calculation.
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In the case of a “free” service like Facebook, the costs are largely “internal costs”. Specifically, it’s the cost of the recruiter’s or marketer’s time.
Let’s look at a simplified example. Let’s say one recruiter spends an entire month using social media to recruit travel nurses. As a result, they get 2 placements. If we use only the recruiter’s salary as the Internal Cost ($74,000/year), then we get the following equation:
$6,100 + 0 / 2 = $3050
$6,100 is the Internal Cost of the recruiter’s salary. 0 is the External Cost since the company didn’t pay anything to use the social media. 2 is the number of placements. $3,050 is the CAC.
Again, this is a grossly oversimplified example. For example, the all-in-cost of the recruiter’s salary is actually much higher if we include things like the cost of medical benefits, payroll taxes, etc.
Also, there would certainly be additional internal costs like rent, training, etc. However, those additional costs are usually the same for all recruiting tools so we’ll leave them out of our simplified example.
Determining the CAC of Premium Travel Nurse Recruiting Services
When it comes to comparing the cost of a premium recruiting service to the cost of a “free” service, the difference often boils down to how much time it takes to get results. If the premium service saves the company enough time to justify the cost, then it is actually less expensive.
Let’s take a look at a simplified example. Let’s say one recruiter spends one week of their time using a premium recruiting service that costs $2,000 per month. As a result, they get 2 placements during the month. The CAC equation is as follows:
$1,434 + $2,000 / 2 = $1,717
$1,434 is the Internal Cost of the recruiter’s salary. $2,000 is the External Cost of the premium recruiting service. 2 is the number of placements. $1,717 is the CAC.
As you can see, the CAC of the premium recruiting service is much less expensive than the CAC for the “free” service. The premium service delivers a customer for $1,717. The “free” service delivers a customer for $3,050.
Again, these are just examples. They do not represent actual CACs that agencies experience. However, these examples do illustrate the exact formula businesses use to determine their CAC. Additionally, the general outcomes are also in line with reality.
Example “Free” Travel Nurse Recruiting Service
For example, “free” recruiting services typically require agencies to invest lots of time. This is largely due to the fact that recruiters inundate free services when they see results. Therefore, the free services get diluted.
More importantly, “free” services lack the features necessary to optimize for recruiting results. Here again, Facebook is a good example.
On Facebook, recruiters must post jobs manually. Candidates are subject to Facebook’s notoriously dysfunctional search feature if they want to search for jobs.
Recruiters can’t really search for candidates to contact on Facebook. Facebook doesn’t have job matching or candidate matching features.
At the end of the day, Facebook’s primary objective is to get users to stay on Facebook so Facebook can continue serving ads. This means that Facebook’s interests are not aligned with the travel nursing company’s interests.
Example Premium Travel Nurse Recruiting Service
By contrast, premium recruiting services are optimized for recruiting results. The premium recruiting service knows that they deliver more value to their customers when recruiters spend less time on their platform.
Therefore, their primary goal is to get the agency a placement in as little time as possible. This means that the premium recruiting service’s interests are perfectly aligned with the agency’s interests.
Let’s use TravelNurseSource.com as an example. In case you’re not familiar, Travel Nurse Source (TNS) is a popular lead generator used by over 60 healthcare staffing companies.
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First, TNS has a “job-feed-processor”. The processor automatically posts an agency’s jobs so that recruiters don’t have to. This saves the agency tons of time. In fact, it’s impossible for an agency to post every job they have on Facebook.
Moreover, candidates who visit TNS.com are actively seeking a job. Therefore, a recruiter’s time is focused on placeable candidates.
Additionally, TNS.com provides recruiters with powerful search features. This way, recruiters can quickly find qualified candidates.
Finally, TNS delivers live, active leads straight to the recruiter based on filter settings that the recruiter controls. As new candidates signup with TNS, recruiters receive notifications with candidate contact information.
Do Free Travel Nurse Recruiting Services Cost More Than Premium Services?
As you can see, it’s possible for premium recruiting services to cost less than “free” services. It’s also possible for “free” services to cost less than premium services.
Ultimately, agencies use the same CAC formula to evaluate both types of services. Moreover, our experience indicates that different agencies experience different results with the same services.
For example, many agencies have determined that Facebook and other social media services are largely a waste of their time. They simply do not see the return on investment to justify their recruiters’ time.
Meanwhile, other agencies are fully committed to social media. You’ll see their videos everywhere. You’ll see that their recruiters are highly active in various groups as well.
How Travel Nursing Agencies Maximize Exposure
That said, different travel nurses engage with different platforms to find their jobs. Therefore, the vast majority of agencies utilize both premium and “free” recruiting services. They do this in order to maximize their exposure to the available pool of candidates.
As a result, many agencies aggregate all the services they use into one all-encompassing CAC metric. As long as they stay within their desired CAC, then they’re okay. If their CAC goes too high, then they will investigate and cut the worst performers.
Core Question Answered
At this point, our core question is answered. No, premium recruiting services do not necessarily reduce travel nursing pay. These services may even cost less than their so called “free” counterparts.
In any case, agencies will stop using services that cause their CAC to go too high. This goes for both “free” services and premium services.
In fact, we are unaware of any source of candidates that is truly free. At a minimum, any source of candidates will require some level of time.
That said, it is fair for travel nurses to ask whether or not an agency could pay more if their CAC was lower. So, we’ll discuss that question here as well.
Ideal Customer Acquisition Cost for Travel Nursing Companies
To understand the tradeoff between CAC and travel nursing pay, we’ll start by answering the question, “What is the ideal CAC for a travel nursing company?” The answer to that question involves another fundamental business metric called Long Term Value (LTV).
LTV is the gross profit the company expects to make over the lifetime of their relationship with the travel nurse. Of course, the LTV will vary from agency to agency.
For example, if one agency operates with lower gross margins than another agency, then their LTV will also be lower all else being equal. Similarly, if one agency does a better job at retaining their travel nurses than another agency, then their LTV will be higher.
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Let’s return to our example above where the agency earned a gross profit of $7,534.80 for a single contract. Let’s say a travel nurse works three contracts with the company at the same rate before leaving the company for a new job. The LTV would be $22,604.40.
LTV to CAC Ratio for Travel Nursing Companies
Obviously, an agency can’t spend more to acquire a customer than the gross profit they earn from the customer. However, CAC only represents a portion of the agency’s total costs.
Therefore, the agency’s LTV must cover CAC in addition to various other costs. For this reason, agencies, like all other businesses, use the ratio of LTV:CAC to help them determine the ideal customer acquisition cost.
An LTV:CAC ratio of 3:1 is the general rule of thumb for all businesses. Different travel nursing companies may use different ratios. We’ll use 3:1 for illustrative purposes.
In our example, that would mean the travel nursing agency should be spending $7,534.80 to acquire a travel nurse that generates $22,604.40 in gross revenue. This may sound like a lot more than you were expecting. However, remember that that the CAC includes recruiter salaries, marketing costs, advertising costs, representative office costs, recruiter training costs, cost of hiring recruiters, pre-hire health screens, referral bonuses, conferences, etc.
Can’t Travel Nursing Agencies Pay More with a Lower CAC?
With all this in mind, the million-dollar question is, “Can’t an agency pay nurses more if their CAC is lower?” Yes, they could. However, it’s still not as simple as it sounds. Agencies must consider many factors before making that decision. Let’s take a look at some of those factors.
Travel Nursing is a Low Margin Business
First, contrary to popular opinion, travel nursing agencies actually operate with relatively low gross and net profit margins. As we mentioned above, SIA’s 2017 study found that the aggregate gross profit margin for travel nursing companies was 25.8%. That puts them well within the low end of profit margins by industry.
Meanwhile, travel nursing agencies also have low net profit margins relative to other industries. For example, AMN has reported net profits of between 2% and 7% since 2013. It’s important to note that AMN has many business lines that generate higher margins than their travel nursing business, so the net profit on their travel nursing business is actually lower.
The point here is that the average travel nursing agency could be forced to retain the cost savings from a lower CAC. They might need it to pay down debt or establish a rainy-day fund for when the market turns south.
Travel Nursing Companies Want to Grow
If a travel nursing company is flush, then they may consider using the cost savings from a lower CAC to grow their business. In fact, conventional business wisdom instructs them to do this.
The conventional wisdom states that if a business’s LTV:CAC ratio is higher than 3:1, then the business should be spending more on CAC in order to grow the business.
Travel nursing companies might hire more recruiters or account managers. They might also spend more on advertising in an effort to increase the number of travelers per recruiter.
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Indeed, this is one way a company can grow without raising outside capital. They use their own profits to finance the growth.
What About “Recruiterless” Travel Nursing Companies?
With all that in mind, it is nonetheless possible for agencies to reduce their CAC and pass the savings to travel nurses in the form of higher pay. In fact, “recruiterless” travel nursing companies are claiming to do just that.
In case you’re not familiar, companies like Trusted Health, Nomad Health and Stability Healthcare have launched “self-service” platforms for travel nurses. Essentially, travel nurses use the agency’s software to complete many of the tasks that recruiters and account managers typically complete.
The agency’s goal is to reduce their internal headcount. In doing so, the agency expects to reduce operating expenses. The agencies advertise that the savings result in higher pay for the traveler.
Time will tell if these agencies will be able to achieve sustainable unit economics and continue to pass the savings to the traveler as opposed to passing the savings to hospitals in the form of lower bill rates.
However, one thing is for sure. “Recruiterless” agencies currently have customer acquisition costs. And they will always have customer acquisition costs.
Currently, all of these companies use Google advertising, Facebook advertising, job-board advertising, content marketing, referral bonuses and many other “free” and premium resources to make placements. They will ALWAYS need to do this on some level or another.
What Can Travel Nurses Do?
And so, we’re right back where we started. Every business has a CAC. Premium recruiting services can be more or less expensive than “free” recruiting services. What can travel nurses do to have an impact?
First, it’s important to remember that the labor market has a massive impact on wages. In other words, there is truth to the argument that travel nursing pay would increase if people stopped accepting low paying jobs.
However, it’s important to acknowledge that this isn’t always possible. We all have to work to pay our bills.
Second, travel nurses can use niche recruiting services that streamline the travel nurse hiring process. Such services reduce the manpower required on the agency’s part. Such services might also provide additional benefits that traditional career platforms do not. Ultimately, such services reduce the agency’s CAC.
For example, BluePipes provides travel healthcare professionals with the ability to create a universal profile. The profile includes skills checklists, a full job application, document storage and more. This saves the agency and the traveler tons of time and even increases the number of billable hours for both parties.
By contrast, clunky, legacy platforms like Indeed and Monster are both expensive and inefficient for the travel healthcare industry. If you want to keep costs low for the agency, then avoid them altogether.
