Go away PSA. Farewell PSL

You gotta love it when a plan comes together!

This is a true tale. And it has a warning for the recovery after COVID.

Precision Sourcing is an excellent medium-sized IT recruitment business in Sydney. I have been an Advisor on the Board for almost five years.

When I joined, there was a big problem. We were growing – fast. Yay! We were also going backwards in profit as fast as we were growing.

It was classic. So we dug in deep, and the problem began to emerge.

For several years the contracting business was running on an average Gross Profit % margin of 17.6%. A substantial Preferred Supplier Agreement with NSW government was making up 26% of the business at that time. Precision was excited by the prospects for growth at the NSW Government. ( But 26% of your business from one client is a warning bells situation. Loud bells)

Meanwhile, Precision pitched and won a new contract at NSW Government and was appointed to a new NSW government panel (0007 scheme). This was a well-worn high volume, low margin deal, and quite swiftly, the average percentage margin across contract/temp significantly decreased. Within 12 months, the margin across all the NSW Government business was 8.3% and made up 53% of the total contracting business.

We were getting bigger – and poorer.

It was classic revenue over profit blind spot.

I remember very well the Board meeting where we addressed this problem, and I am sure the Directors of Precision do too.
My advice was simple.

‘You are going to fire the NSW government.’

Shock. Horror. Tears. (Ok no tears, maybe).

But we worked it through. We can’t make money at 8.3%. We are placing great candidates at tiny margins that our corporate clients would pay the full fee for.

Our highly paid consultants are spending their time on business that is, in fact, losing us more money every time we make a placement – and then we were paying them commission do it!

So the decision was taken to no longer fill vacancies within the NSW government 0007 panel.

The Government was shocked. We held firm. They kept phoning. We kept explaining, ‘Happy to supply, but not at that rate’. The Consultants were jumpy and needed constant reassurance and coaching. The directors were a bit nervous too, to be honest.
Current contractors slowly finished up, and the consultants focused on high-value business. Margins bottomed, then started to climb.

Today the NSW government makes up less than 3% of the Precision contracting business, and the average % margin has increased back to pre-panel levels.

Precision sales turnover has decreased, but profit has soared. The bank balance is healthy. We have given up the overdraft. We no longer factor our debts. Risk is minimised.

I take my hat off to the Directors of Precision for recognising the problem once it was pointed out, but especially for having the courage to act on the solution.

The business is immeasurably healthier for it. And to be brutally honest, it’s one of the reasons Precision is weathering this crisis storm very well, to date.

Remember this tale as we emerge from COVID. Listen up. Clients are going to be ROI obsessed and will see us as ‘desperate’.

They will try and screw us on the rate.

And you will be tempted. Hold firm though

Remember;

Revenue is Vanity. Profit is Sanity. Cash is Reality.

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