Before you claim the ‘market is tough’ or decide ‘clients are being unreasonable’, check your management of the power of incremental leverage.

Assess too if you have a total grasp of its ugly twin, ‘negative leverage’

Too much ‘jargon’?

Fair enough. Let’s dive into an example

Many recruiters tell me their temp business is declining.

But is it?

If your Temp count (number of Temps/Contractors being paid weekly/monthly) is dropping, that is one thing, and there will be a solution to that issue.

But what if your Temp count and temp hours billed are stable, yet your Gross Profit (or Temp Net Fee Income) is dropping?

What’s going on there?

Well, firstly, you need to understand that there are four levers you or your team can pull to increase the Gross Profit generated from Temp and Contract activities.

Gross Profit?

Gross Profit means net temporary contractor margin. All clear? OK. Bill rate to client, less pay rate to temp, less statutory on costs like payroll tax, superannuation, workers’ comp insurance (or whatever is applicable in your market).

So, it is the (Temp and Contract) income of the agency before the general overheads.

Not Sales, but Net Margin = Gross Profit

If you want to understand those four levers – and if you are in temp recruitment, you do – I laid it all out here for you.

But how can your temp numbers and temp hours stay stable, but the total $ Gross profit go down?

Often, it is ‘the power of one’.

Many recruitment companies require their temp consultants to operate off a ‘rate sheet’, which instructs them what to charge the client and what to pay the temp for a specific skill set or task.

The problem with this is that when the client screws the recruiter down on the rate that they will pay, typically the consultant still pays the temp the rate-sheet amount, which results in the margin being squeezed.

Equally, temp rates often rise in a candidate-short market, and consultants without negotiating skills will put the temp rate up without passing on the increase to the client, which has the same effect on the margin.

Companies often don’t even notice this, and when they see their percentage margin drop, they blame it on ‘the market’. Unfortunately, it’s not the market – it’s poor recruitment consulting skills.

The temp recruiter knows the margin has dropped in most cases, but says, “It’s only a dollar, and it’s long-term, so I will make it up”. However, this demonstrates inferior negotiating skills. It proves very shoddy commercial understanding, too, because slowly their margins get eroded, and it costs the business and the consultant a fortune.

For all the temp businesses I have run – and they have been many – the goal has always been to increase the margin by $1 an hour across all our temps.

Never gouge clients, never underpay temps, but charge full weight for our excellent service.

It’s really not such a big task when you think about it. Over the next six months, can you imagine charging each client 50 cents more per hour and paying each temp 50 cents less? It does not need to be in every case, but if that’s the average across your temp count, the incremental dollar difference will be huge.

Let’s take, for example, a temp business that is running 150 temps a week. It’s not tiny, but it’s certainly not huge, and thousands of recruitment companies worldwide are paying many more than that. Have a look at the elementary arithmetic and then decide whether $1 per hour makes a difference:

150 temps are paid per week, and each temp averages 35 hours of work per week: 150 × 35 = 5,250 hours.

If we increase the margin by $1 per hour for every temp placement across all 150 temps, that means the business makes $5,250 more per week: $5,250 × 52 weeks = $273,000 a year.

Just a lazy quarter of a million dollars a year.

That’s over $1.5 million extra margin in five years, for no additional work.

All of that would be profit to the business, except for the part that went to the consultant as a bonus.

Oh, by the way, if your company is running a thousand temps (And the day we listed my first company, Recruitment Solutions, on the Australian Stock Exchange, we were indeed paying 1,000 temps a week), the power of one equals $1,820,000

Per year

$1,820,000

For a tiny margin squeeze of $1

Do I have your attention?

That’s the power of one.

(If permanent recruitment is your thing, the same leverage can work for you. You fill one job out of 5?  Transitioning from one out of five to one out of four, through improved job qualification and triage, results in a 20% increase in revenue. For no extra work. Less in fact!)

*******************************************************************************************************************************************************************************

FREE WEBINAR

(Tomorrow. Recording sent if you miss it. But must sign up now.)

To thrive in recruitment in an AI world, you need to master the blend of Art and Science.

Join this webinar session designed to help agencies and consultants thrive in the new era of AI-driven recruitment. This session will provide a framework for effectively implementing AI and Automation into your regular processes, paired with practical learnings on the essential human skills that can be augmented by technology.

Greg’s presentation will be followed by a Q&A hosted by Synaptico, allowing you to ask anything about effective AI and recruitment.

Attendees of this session will learn:

• Calibrating your mindset and attitude towards AI and automation
• The reality of AI deployment in recruitment agencies right now
• The smart way to think about AI and human skills in recruitment
• Making the marriage of Tech and people skills work
• The five stages of client relationships
• The practical questions you must ask about data and automation

FREE. Sign up for the Webinar here.

*********************************************************************************************************************************************************************************