So, you’re considering a vendor management solution? Maybe you’re an MSP or RPO solution provider looking to add to your stable of VMS providers. Maybe you’re an established recruitment business - tired of being 2nd tier and looking to setup your own master vendor. Or maybe you are just wondering why anyone would even bother…..can’t you just use a spreadsheet?
A Vendor Management System (VMS) plays a pivotal role in procurement processes, enhancing compliance, optimising costs and even enabling your business to win clients you otherwise may not have. Yet, as organisations embark on the journey to implement a VMS, a fundamental question invariably arises: What will be the price?
The answer to this question is as multi-faceted as the benefits a VMS promises to deliver. Cost considerations for a VMS can encompass licensing fees, implementation, customisation, and ongoing maintenance, making it a topic that calls for a comprehensive exploration. Here, we delve into the intricacies of VMS pricing, shining a light on the factors that influence expenditure and guiding you towards well-informed decision-making. So, let's embark on this cost-conscious expedition to uncover the true price of a Vendor Management System.
Determining the cost of a Vendor Management System (VMS) can be a bit like shopping for a car – it depends on your specific requirements, your choice of VMS provider, and the size of your company. Here are the common pricing considerations you may encounter:
1. Licensing or Subscription Fees: These fees, which can vary based on the number of users and your organisation's scale, serve as the base cost. Some VMS providers offer tiered pricing plans, allowing you to select the one that aligns with your needs.
2. Implementation Costs: Implementing a VMS includes set-up, configuration, and integration with your existing systems. These costs encompass software installation, data migration, and staff training, and can vary based on the complexity of the implementation.
3. Support and Maintenance: VMS systems require ongoing support, updates, and maintenance. Providers often charge annual maintenance fees, which may be a percentage of the initial licensing or subscription fees. Some may charge this as a separate fee whereas others may incorporate into SaaS pricing.
4. Customisation and Tailoring: If your organisation has specific requirements and needs a customised VMS solution, there may be additional development and customisation costs. These customisations can adapt the VMS to your unique processes and workflows.
5. User Licenses: The number of user licenses can impact the overall cost. Consider how many users will have access to the system and whether the pricing is per user or follows a different model. Also..what is a user - client, candidate, internal staff?
6. Additional Features: Some VMS providers offer extra features and modules at an additional cost. These features can include advanced reporting and analytics, vendor scorecards, or integrations with other software systems.
7. Data Security and Compliance: VMS solutions usually come with built-in security and compliance features, but if your organisation has specific security or compliance requirements, additional investments may be necessary.
8. Scalability: Consider the VMS's ability to scale. If your organisation grows, you may need to scale up the VMS to accommodate changing requirements, which can affect costs.
9. Third-Party Integration: If you need to integrate the VMS with other software systems or third-party applications, there may be additional costs associated with these integrations.
10. Training and Support: It's crucial to allocate budget for training your staff to use the VMS effectively. Ongoing support ensures your team can maximise the benefits of the system.
To get an accurate cost estimate for a Vendor Management System, reach out to VMS providers and discuss your specific requirements. They can provide you with detailed pricing information tailored to your organisation's needs. Additionally, you can request quotes and proposals from multiple providers to compare costs and features. Keep in mind that, while cost is a significant factor, it's equally important to consider the value and benefits that the VMS can bring to your organisation.
Common Pitfalls to Avoid When Acquiring a VMS
When acquiring a VMS, it's crucial to be aware of potential pitfalls to ensure a successful implementation. Here are some common pitfalls to watch out for:
1. Inadequate Needs Assessment: Failing to thoroughly assess and understand your organisation's specific needs and requirements can lead to choosing a VMS that doesn't align with your goals. Conduct a comprehensive needs analysis before selecting a VMS.
2. Lack of Stakeholder Involvement: Not involving key stakeholders, including procurement, HR, and IT teams, can lead to resistance, lack of support, and challenges during the implementation process. Ensure that all relevant parties have input in the decision-making process.
3. Overlooking Scalability: Choosing a VMS that can't easily scale to accommodate future growth can result in the need to replace the system sooner than expected. Ensure the VMS is scalable and can adapt to your organisation's changing needs.
4. Inadequate Vendor Due Diligence: Failing to conduct thorough due diligence on VMS providers can result in selecting a vendor with a poor track record or inadequate customer support. Research and review multiple vendors to find a reputable one with a strong customer service record.
5. Ignoring Integration Capabilities: If the VMS doesn't integrate seamlessly with your existing software systems (e.g., HR, payroll, or procurement systems), it can lead to data silos, inefficiencies, and additional work. Prioritise a VMS that supports necessary integrations.
6. Underestimating Implementation Effort: Underestimating the time and resources required for VMS implementation can lead to delays and unexpected costs. Be realistic about the implementation process, and plan accordingly.
7. Neglecting User Training: Inadequate training for users can result in underutilisation of the VMS and lower adoption rates. Allocate resources for comprehensive training programmes to ensure users are comfortable with the system.
8. Overlooking Data Security and Compliance: Failing to prioritise data security and compliance features can lead to legal and regulatory issues. Ensure that the VMS meets your industry's compliance requirements and provides robust security measures.
9. Poor Change Management: Inadequate change management strategies can lead to resistance and a slower adoption of the VMS. Create a change management plan to ease the transition and ensure staff buy-in.
10. Not Evaluating Total Cost of Ownership (TCO): Focusing solely on the initial costs and not considering long-term costs, including maintenance, support, and scalability, can lead to budget overruns. Assess the VMS's total cost of ownership before making a decision.
11. Ignoring Vendor Lock-In: Some VMS providers may make it challenging to switch to a different vendor in the future. Be cautious of vendor lock-in and ensure that you have exit strategies in place.
12. Rushing the Decision: Making a hasty decision without adequate research and vendor comparisons can result in selecting a VMS that isn't the best fit for your organisation. Take the time to thoroughly evaluate your options.
While Vendor Management Systems (VMS) can offer significant advantages in staffing management, they may not be the best fit for every organisation. Here are situations where an organisation might consider not investing in a VMS for staffing:
Very Small Businesses: Small businesses with a limited number of staffing needs and a small pool of vendors may find the complexity and cost of a VMS outweigh the benefits. In such cases, simpler manual processes or basic tools may be more cost-effective.
Limited Staffing Needs: Organisations that primarily rely on permanent employees and have very limited temporary staffing requirements might not fully utilise the features and capabilities of a VMS. The investment may not justify the occasional use.
Budget Constraints: In cases where an organisation is facing severe budget constraints and cannot allocate resources for VMS implementation and maintenance, exploring more cost-effective staffing management solutions may be a better choice.
Resistance to Technology: If your organisation's employees are resistant to adopting new technology or lack the necessary IT infrastructure to support a VMS effectively, the transition can be challenging and result in underutilisation of the system.
Temporary or Short-Term Projects: Organisations frequently engaged in short-term projects with minimal temporary staffing needs may not see a sufficient return on investment from a VMS due to the long-term commitment and costs associated with implementation.
Lack of Vendor Relationships: If your organisation engages with a limited number of staffing agencies or has minimal vendor management needs, the overhead of a VMS may not be warranted.
Complexity Aversion: Some organisations prefer simplicity and want to avoid the complexities associated with implementing and managing a VMS. In such cases, a VMS may introduce unnecessary complications.
Regulatory Constraints: In industries with stringent regulatory constraints that limit the use of certain software or data handling practices, implementing a VMS may be challenging and require extensive compliance efforts.
Inflexible Business Models: Organisations operating in highly specialised or niche markets with unique staffing management needs might find it challenging to adapt a generic VMS to their specific requirements.
Pricing Models for a VMS
Vendor Management Systems (VMS) are available with various pricing models to cater to different organisations. Here are the typical pricing models:
1. Subscription-Based Pricing: Organisations pay a recurring fee at regular intervals for VMS access, support, and updates.
2. Per-User Pricing: Cost is determined based on the number of users who will access the VMS, with each user being billed individually.
3. Tiered Pricing: Different pricing tiers are offered based on the organisation's scale and needs, with higher tiers providing access to more features.
4. Pay-Per-Use Pricing: Organisations are charged based on their actual usage of the VMS, such as the number of transactions or vendor interactions.
5. Custom Pricing: VMS providers offer personalised pricing tailored to an organisation's specific requirements.
6. One-Time Setup and Licensing Fees: Organisations pay a one-time setup fee in addition to recurring licensing fees for access and support.
7. Volume-Based Pricing: Organisations with a high volume of vendor interactions or extensive procurement activities may benefit from volume-based pricing.
8. Hybrid Pricing: This model combines different pricing structures to meet various needs within an organisation.
9. Free or Freemium Models: Some VMS providers offer free or freemium versions with basic functionality and paid upgrades for advanced features.
10. Concurrent User Pricing: Organisations pay based on the number of users who are concurrently using the VMS at any given time.
11. Percentage of Invoice Throughput Pricing: Possibly the most popular - Organisations are billed a percentage (e.g., 1% to 3%) of the total value of invoices processed through the VMS and this pricing typically includes ongoing support / maintenance.
Each of these pricing models offers distinct advantages and considerations. Organisations should carefully evaluate these models and select the one that aligns with their vendor management needs, budget, and expected usage, considering factors such as scalability and long-term costs.
Will I win more clients with a VMS?
Having a Vendor Management System (VMS) for staffing can be a significant asset when it comes to winning more clients in the staffing industry. Here are several ways in which a VMS can help you attract and retain clients:
Efficiency and Cost Savings: A VMS streamlines the staffing process, reducing administrative burdens and the time it takes to fill positions. This efficiency can result in cost savings for your clients, making your services more attractive.
Real-time Reporting and Data: A VMS provides real-time reporting and analytics, giving your clients visibility into their contingent workforce. This data transparency allows them to make informed decisions, manage budgets, and plan more effectively.
Compliance Management: Compliance is a critical concern for many clients, especially in regulated industries. A VMS can help ensure compliance with labor laws, regulations, and client-specific requirements, providing peace of mind for your clients.
Access to Quality Candidates: A VMS allows you to manage a pool of pre-vetted candidates. This reduces the time it takes to fill positions and increases the likelihood of finding the right match for your clients' needs.
Diverse Workforce Management: A VMS can help your clients manage a diverse and flexible workforce, including temporary, contract, and gig workers. This adaptability is particularly valuable in today's dynamic job market.
Scalability: Your clients may experience fluctuations in their staffing needs. A VMS can scale to accommodate changing demands, ensuring they always have the right number of workers without overcommitting to permanent hires.
Vendor Performance Management: If you work with a network of staffing agencies, a VMS can help you evaluate and manage their performance. This ensures that your clients receive the best service and talent from your network.
Improved Communication: A VMS provides a centralised platform for communication and collaboration with clients, staffing agencies, and workers. This improves transparency and coordination, leading to better client relationships.
Customisation and Tailoring: A VMS can be customised to match your clients' specific needs and workflows. This flexibility allows you to provide tailored solutions that meet their unique requirements.
Competitive Advantage: Offering a VMS demonstrates your commitment to staying current with technology and industry best practices. This can give you a competitive edge when competing for clients against other staffing providers.
Cost Control: A VMS enables precise cost control and budget management. Clients can monitor and optimise their staffing budgets effectively, which is a compelling selling point for many organisations.
Long-term Partnerships: By consistently providing value through a VMS, you can build stronger, long-term relationships with your clients, making them more likely to return for future staffing needs.
Overall, a VMS enhances your capabilities and offerings as a staffing provider, which can help you attract clients seeking efficient, cost-effective, and compliant staffing solutions. It also positions you as a strategic partner rather than just a service provider, which can be a powerful differentiator in the competitive staffing industry.
What could the numbers look like for an MSP acquiring a new client requiring a new VMS with £20m of annual spend?
Assumptions:
Total Staffing Spend by the Client: £20,000,000 per year
Total Invoiced Fees to the Client: £20,000,000 per year
VMS Provider's Cost: 0.6% - 1% of Total Invoiced Fees
MSP's Service Fee Percentage: 2-5% of Total Staffing Spend (assumed here as 3% for calculation purposes)
VMS Implementation Cost (Year 1): £15,000
VMS Implementation Cost (Years 2- ): £0
VMS Provider's Cost:
VMS Cost (Low End): 0.6% of Total Invoiced Fees
VMS Cost: 0.6% of £20,000,000 = £120,000 per year
VMS Cost (High End): 1% of Total Invoiced Fees
VMS Cost: 1% of £20,000,000 = £200,000 per year
Total VMS Costs (Including Implementation for Year 1):
Total VMS Costs (Low End): VMS Cost (Years 2- ) + VMS Implementation Cost (Year 1)
Total VMS Costs: £120,000 + £15,000 = £135,000 in Year 1, and £120,000 in Years 2-
Total VMS Costs (High End): VMS Cost (Years 2- ) + VMS Implementation Cost (Year 1)
Total VMS Costs: £200,000 + £15,000 = £215,000 in Year 1, and £200,000 in Years 2+
MSP's Service Fee:
MSP Service Fee: 3% of Total Staffing Spend (as an example)
MSP Service Fee: 3% of £20,000,000 = £600,000 per year
Gross Profit:
Gross Profit (Low End): MSP Service Fee - Total VMS Costs (Year 1)
Gross Profit: £600,000 - £135,000 = £465,000 in Year 1, and £480,000 in Years 2-
Gross Profit (High End): MSP Service Fee - Total VMS Costs (Year 1)
Gross Profit: £600,000 - £215,000 = £385,000 in Year 1, and £400,000 in Years 2+
Summary:
The VMS provider charges the MSP between £120,000 and £200,000 per year, which is 0.6% to 1% of the total invoiced fees of £20,000,000.
The MSP incurs an additional implementation cost of £15,000 in Year 1.
In Years 2+ , the total VMS costs, including the VMS provider's cost, amount to between £120,000 and £200,000 per year.
The MSP charges the client a service fee of 3% of the client's £20 million annual staffing cost.
The gross profit for the MSP, after accounting for VMS costs, ranges from £385,000 to £465,000 in Year 1 and from £400,000 to £480,000 in Years 2-12.
Some MSPs charge the client a technology usage cost to recoup either all or a percentage of the VMS cost.
So look, I’ve sold VMS systems for some time and the above seems to be common considerations that a buyer faces during the sales process. Hopefully with this information, you’re further informed on whether or not you should progress and if so….how much will it cost me and what revenue can I obtain.
For info on the staffing supply chain models available, see our other post on Navigating Supply Chain Management here
If you can use any further guidance from me, feel free to reach out to me via the chat function on this website and I highly recommend taking a look at Zeel Solutions; their technology is particularly suited to complex environments with multiple clients and stakeholders.
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