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For most recruitment agencies there has been 10 years of economic growth and it is easy to forget the cyclical nature of the industry. After several recent conversations, we’ve hypothesised that corporate memory seems to be about six or seven years. The lessons of past cycles have mostly been forgotten. It would be reasonable to say that it is an obligation of business owners and managers is to work the economic conditions to best advantage of the business for both profitability and longer-term sustainability.
Any future economic downturn will impact the internal management of recruitment agencies differently to what has happened previously because the structure of running a recruitment business has changed.
Corporate clients are likely to react in a similar manner to what they did previously – a loss of confidence results in permanent hiring pausing, contract hiring rising for essential projects, and overall business structures and levels being reduced as business managers take a conservative view of the future and aim for costs reductions. All levels of recruitment agency activity reduce.
Recruitment agency managers need to be prepared to react. There is much to consider on both the revenue side of the equation as well as the expense side of the equation. In this article we have concentrated on expense flexibility.
Staff costs
Staff costs are the biggest single expense. Benchmarking shows that, on average, total staff expenses are running at an unsustainable level of around 60 per cent of gross profit. In times of economic growth! Much can be done in this expense category. All staff can improve sales capability, ensuring the organisation is not just an ‘order taker’. Commission structures can be set to highlight and reward those that genuinely win work.
Most importantly, flexibility can be built into the recruitment process and the way in which client and candidate facing staff are organised. Flexibility is difficult to achieve when all consultants have a 360-degree role as the only way of adjusting is to hire or fire.
If the recruitment process is acknowledged to be a collection of specialist activities (talent attraction, sales, job filling, contractor management, social media etc) then more time can be taken by the best staff working on functions where they excel. Amongst other benefits, this reduces the total cost of staff as only sales-oriented staff are rewarded with strong commissions, and other staff are rewarded in a different way.
We have long been supporters of specialist outsourcing for the clarity it brings – processes must be very clear and must be measured to successfully outsource. Offshore outsourcing brings the additional benefit of cost savings through salary arbitrage. The important outcome is that outsourcing brings a level of flexibility as contracts should be able to be adjusted up or down to meet demand. Think about that – keep your best staff in the roles in which they excel and adjust the support functions to meet demand.
Other expenses
Accommodation costs are the second biggest expense item. How would your business manage if you had 25 per cent less staff? 50 per cent less? Keeping accommodation costs low and flexible is important. Staff can be removed from the business, but the fit-out cost still must be paid and the lease is often guaranteed by the shareholders of the business.
Many recruitment company owners talk with pride about their accommodation space and the relationship to improved and stronger culture as well as the ability to attract new staff. All true. But reducing debt and reducing future obligations is a prudent move.
Fortunately, the past decade has seen a dramatic shift in how technology and services are delivered. Today most marketing, social media and technology products and services are provided on a cost per head basis in a SAAS environment. Most contracts are flexible enough to adjust within a relatively short period of time, and the infrastructure needed to run a complex IT solution has all but disappeared.
Reviewing all products and services on a regular basis is a business capability that can be learned. How long is it since your organised reviewed the services and the costs of your insurance, banking, debt, telecommunications and other services? All sectors are changing rapidly and if you’ve had a supplier for several years they need to be proving themselves to you to keep your business.
We hope that the current economic cycle continues for some years. Certainly, there is enough good news in the economy to suggest it will. But downturns happen at a time that is not of anyone’s choosing, and you need to be prepared.
Article written by Rod Hore originally published in The Global Recuiter
