So you’re in demand….but are you profitable? This is a great article from Alison Humphries. I recently interviewed Alison on RecruiterZone where she shared some tips on the 7 habits of highly effective recruitment leaders.
Most recruiters I know are enjoying a period where demand from clients is the highest they have ever known.
Sensibly, many have taken the opportunity to revisit things with clients, explaining their role and responsibility in managing recruitment to a successful outcome. And many are asking for retainers or “deposit” payments as a proof of commitment.
Most leaders of recruitment agency businesses are profoundly sales-led. The focus on the top line is written through them like a stick of rock. They “feel” busy and successful, and often, profitability follows.
However, true business leaders need to look at the whole of their business- investment, efficiencies and spend. If the eye is always drawn by the top line, then the bottom line can suffer. And, as almost all businesses are going to face a substantial tax hike imminently, you really do need to understand what affects the bottom line.
The biggest cost for recruitment businesses is almost invariably their own staff. Many leaders have already fallen prey to the “great resignation” reported by those who have a big vested interest. However, even if you believe the narrative of revenge resignations, most people don’t simply leave because of a potential payrise. They leave because of poor management, lack of flexibility and lack of ongoing development.
However, fake “promotions” and basic pay rises are just a cost. If you haven’t got a clear, transparent structure where performance expectations increase with seniority, then you have just got a bunch of over-rewarded consultants. Measure the total payout to all your staff (Basic, commission, pensions, employer’s NI) as a percentage of your total net fee income. If that figure is above 40%, then you should be looking for more productivity or lower-cost staff that you can train up.
Secondly, you may already have felt the substantial increases that job boards are asking for this year. What is interesting is how many leaders say they get no results from them but regard them as brand advertising, a kind of “cost of doing business”. But have you looked at what your consultants are putting on these job boards? Or worse, reposting each week? You could definitely be getting better value.
Third, are you really using your CRM to its best advantage? If your team are routinely starting a job-fill process from net zero they are not just costing you a lot of money; they are throwing away an opportunity to lock the job/client down with a known candidate or candidates. Have you looked at how many candidates pulled from job boards were already languishing on your CRM?
Third, taxes will rise and other costs increase with inflation. So any business needs to create a bigger EBIT figure than before just to stay still. Make sure you have reliable advice from a tax specialist who actually understands business. If you can legitimately invest in R&D, or pensions then you will reduce corporation tax.
However, reducing direct costs is just half the picture. In my next blog we’ll look at the nitty gritty of understanding business efficiencies. Look out for it!
Alison Humphries (Hon FREC, MA Oxon, CIPD, Dip T&D) is an experienced board advisor and NED specialising in the recruitment industry. She has built and grown multiple businesses, including leading them through successful trade sales. To discuss how your business can benefit from advice from one of the most respected leaders in the business, click here
In my last blog click here I wrote about the distinction between sales success and profitability. Managing costs is the obvious place to start. But this time I want to focus on the areas that very few recruitment business leaders have a grasp of:
Efficiencies.
If you run a perm recruitment business, you might think that retainers will solve all your problems. But that’s only true if you can deliver on a role efficiently. Otherwise you are writing a blank cheque of your time to your client, and if you spend 80 hours filling that job then that’s 80 hours when you are not building your candidate network and your pipeline. So start drilling down on actual time spent on a role and how it can be better managed. Can you automate some of the process? Can you make your research more targeted?
One business I worked with had been averaging 10% placement fees pre-pandemic. This was not unusual in their sector. They undertook to raise the minimum fee to 15%, after training. Three months later, however, they had only increased their average fee to 12%. Why? Because staff just found it easier to say yes to a client than no. The business owner wasn’t checking. Remember, if you want to make a change permanent, people need continued support.
The same business had a major issue with drop outs, which was undermining their sales. On careful investigation, we realised that they were just recognising sales too early. They were very good at the counter-offer speech, but actually the issue went back to their first interview with the candidate. They were so keen to sell job opportunities that they failed to investigate the candidates’ true motivations, and constraints. So when the offer came in and the candidate explained that his partner was a teacher who couldn’t move, the recruiter was taken by surprise.
Payment terms are stretched and are likely to get stretched further as your clients experience their own inflationary pressures. If your clients have a lot of buying power, you may not be able to change this, but you can manage it. Can you invoice for the interest that your terms allow you to charge? Can you negotiate a more favourable fee to the client for prompt payment?
If you run temps/contractors, you are almost certainly making use of an ID facility. But how closely are you managing your temporary workforce? For example, the cost of attraction, engagement and compliance is substantial for many sectors. Having made that investment, are you redeploying these contractors regularly? Do your consultants actively seek extensions for them, or just accept that the assignment is ending? In one business we were able to extend assignments by 50% on average just by highlighting what the contractor had achieved and reminding their line manager of other skills.
Are your workers putting in timesheets for the hours expected? If they don’t hear from the recruiter, it’s alarming how many take several days off, don’t send in their timesheets or even disappear to another provider. In one case, just writing to contractors in advance of the May bank holidays, advising them how to protect their earnings by making other arrangements with the hirer, brought May GP back up to match June.
Finally, have a look at business development. I expect very few of your staff are doing it. They are waiting for the “magic day” where all their job-filling work is done and they can draw up a list of targets.
Thing is, at any point your brilliant client can disappear. A change of key staff, a board-led review of TA, and it’s all gone. At the same time, you can’t have expensive staff doing basic market research instead of filling live jobs.
The answer? Make the activities they are already doing into BD activities with a few extra questions. For example, every candidate interviewed can yield one candidate referral and one potential job lead. Every failed assignment where the client fills it through other sources can provide a lead as well.
Alison Humphries (Hon FREC, MA Oxon, CIPD, Dip T&D) is an experienced board advisor and NED specialising in the recruitment industry. She has built and grown multiple businesses, including leading them through successful trade sales. To discuss how your business can benefit from advice from one of the most respected leaders in the business, click here
