So you’re in demand… but are you profitable? Part One

Published on

March 10, 2022

Written by

Alison Humphries
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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 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.

Costs

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 pay rise. 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?

Fourth, 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 Part Two, I look at the nitty-gritty of understanding business efficiencies. Take a read, today!

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, book a call with Alison here.

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