Contract vs Direct-Hire Mix

Why this comes up

Temp/contract billings and direct-hire fees don't compare on the same axis. A direct-hire placement usually shows a much higher contribution margin percentage than a contract placement, because there's no ongoing payroll cost eating into it, but it's also a one-time event with no recurrence and no cash tied up in payroll float. Comparing service models on margin percentage alone will always make direct hire look like the better business, even when a lower-margin, cash-hungry, recurring contract book is what's actually keeping the agency's revenue stable month to month. This engine puts billings, margin, cash requirement, and recurrence side by side so the comparison accounts for all four at once.

How we calculated this

Contribution Margin (per model) = Economic Contribution / Billings
Blended Margin = sum of Economic Contribution / sum of Billings
Recurring Revenue Share = sum of billings from recurring models / total billings

Worked example, using the calculator's own defaults: a Temp/Contract model at $600,000 billings, $90,000 economic contribution, $40,000 cash requirement, recurring; a Direct Hire model at $160,000 billings, $120,000 economic contribution, $0 cash requirement, not recurring.

Temp/Contract margin = 90,000 / 600,000 = 15.0%
Direct Hire margin = 120,000 / 160,000 = 75.0%
Blended margin = (90,000 + 120,000) / (600,000 + 160,000) = 210,000 / 760,000 = 27.6%
Recurring revenue share = 600,000 / 760,000 = 78.9%
Total cash requirement = 40,000 + 0 = $40,000

Direct hire's 75% margin dwarfs contract's 15% on paper, but contract still supplies 78.9% of total billings and the only recurring revenue in the mix, which is exactly the kind of context margin percentage alone hides.

What this means

• Blended margin tells you the overall contribution rate across every model combined; use the per-model contribution margin column to see which model is actually driving that number up or down.
• Recurring revenue share matters because recurring billings are what you can plan next quarter's staffing and cash flow around; a book that's 80% one-time direct-hire fees needs a fuller pipeline every single month to hold revenue flat.
• Cash requirement is the tradeoff on the other side of contract's recurrence: temp and contract billings tie up cash in payroll float between when you pay the worker and when the client pays you, while a direct-hire fee typically doesn't.
• No single column here is "the answer"; the right mix depends on how much cash the agency can carry, how much revenue stability leadership needs, and how each model's margin trends as volume changes.

Limitations

This never ranks models by margin alone; a lower-margin recurring model can be worth more to the agency than a higher-margin one-off once cash requirement and revenue durability are weighed in. It's a snapshot comparison of the figures you enter, it doesn't project how each model's mix would change under a different growth scenario, and it doesn't account for how much of your team's capacity each model actually consumes to deliver.

Common mistakes

• Deciding to push harder into direct hire purely because its margin percentage looks better, without weighing the loss of recurring revenue against a growth target.
• Leaving cash requirement at zero for a contract or temp model when payroll float genuinely ties up working capital there.
• Comparing two models with very different billings sizes on margin alone, instead of also looking at blended margin and recurring share to see the actual dollar and stability impact.

Frequently asked questions

What counts as "economic contribution" here, versus GP?

GP is gross profit as reported on the books; economic contribution should net out anything GP doesn't, like payroll-float carrying cost or guarantee risk, so the comparison reflects what the model actually nets the agency, not just its accounting margin.

Can I add more than two service models?

Yes, use "Add service model" to compare temp, temp-to-hire, direct-hire, or any other model you track separately; the blended figures update across however many rows you add.

Why does a lower-margin model sometimes come out ahead?

Because this engine weighs recurrence and cash requirement alongside margin, not margin in isolation. A recurring model earns its keep on revenue stability even at a lower margin percentage.

Next decision

• Roll individual account decisions back into client and account economics
• Check whether extending a specific contract beats replacing it

Learn more

Temp, Temp-to-Hire, and Direct-Hire Economics — three placement models with genuinely different economics, and why margin alone can’t compare them.