Understanding Laboratory Software Services Markups and Subcontracting

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Gloria (Metrick) Slomczynski,
Quality Systems Analyst at Medline Industries

Markup and Subcontracting:       Some of the preferred vendors have to subcontract to other firms to get laboratory software people for their customers’ projects because many preferred vendors that operate within large companies are huge firms that don’t happen to specialize in providing laboratory software resources. In some cases, the subcontracts are subcontracted to subcontracts and subcontracted yet even more. Remember this – every firm involved needs to make money. Firms charge their markup over what they pay their subcontractors so that they do make money on the work. For each level of subcontracting that occurs, that means that there are that many levels of markups in play and it means the person doing the work is paid less than you might think.

Example 1:          Let’s suppose that you pay your preferred vendor $200/hour for a LabWare LIMS specialist. If your preferred vendor doesn’t normally have those types of people working with them, they will go find someone to subcontract that to. Let’s suppose they want to make 30% to cover their overhead and make some profit on this, so they offer the subcontracting firm $160/hour for the resource. Now, let’s suppose that firm specializes in laboratory software consulting but not in the brand of LIMS that the customer has. They won’t just pass on that project. Instead, they’ll go to look for a firm that specializes in that brand. Let’s suppose that they, too, want to make 30% to cover their costs and make a profit. They will now offer the next firm $112/hour for the work. Firm #3 does specialize in this and does take the offer but all their people happen to be busy so they look for another firm to do the work. As the others did, suppose that they also want 30% of the hourly rate. That means that they’ll look for someone around $90/hour. If the fourth firm is another consulting firm, that means that, if they have an employee available to send on the project, that the person isn’t going to be making $90/hour.

Customers are often shocked when they pay $250/hour, $200/hour, or even as low as $150/hour and are sent resources that seem as if they’d fit better into the $100 or less category. While four levels is a somewhat extreme example, it’s not unheard of, either. It’s probably more common than customers think.

Example 2:          Suppose that there is someone who can work on your system and is exactly the right resource at $100/hour. However, because you, personally, have no idea how to find such a person, you use another consulting firm that does not specialize in this type of work to look for you. Let’s suppose they find exactly the right person. Let’s also suppose that you need the person on-site 100% of the time and that they need to travel.  Let’s suppose that $30/hour will cover the travel costs. Now, the person is really $130/hour. However, we still need to consider the markup. Let’s add a 50% markup to this for the services firm that did the looking for you. That brings it up to $195, but most companies will even this off to $200/hour. Not all companies are going to make the markup this high nor include the travel expenses in the markup. However, this is not necessarily uncommon in our industry, either.

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