Recruitment Agency owners are spilling profits on the floor

I have warned before of the mistakes made chasing revenue growth without a corresponding surge in profit.

Sometimes it’s ego. More often it’s just poor management.

And in Australia, right now, it’s happening in epidemic proportions.(and I suspect the very same thing is happening elsewhere)

The excellent data produced by Staffing Industry Metrics show that when it comes to sales, Australian recruitment agencies had an outstanding year in FY19.

However, despite market conditions being the best in recorded history, only 1 in 5 recruitment agencies increased their profit in FY19.

That means around 80% recorded a decrease in profit.

 That is a disaster and a missed opportunity, and a strong warning for action to be taken.

The recent report from Staffing Industry Metrics goes on to clarify the reasons for this shocking result;

Productivity as defined as gross profit (or net fee income) produced by each staff member, declined by 4% over the course of the year, falling from $216,894 per staff member in FY18 to $207,814 in FY19. 

While the top 10% of performers increased productivity, the growth was a negligible 0.1% at $296,842 per person.

 Unsurprisingly, staff turnover was largely to blame for poor productivity combined with low fill rates on perm orders – ie… lots of work done for no return.

To top all this off, staff cost across the surveyed agencies reached a record high, increasing 5% from FY18 to an average of $162,491 per staff member.

As one would expect there were some standout performers. In fact, the results from FY19 show a great divide between the top-performing recruitment agencies and the majority.

For most, the surge in sales led to more hard work and pressure, but not to an increase in profit.

On average, profit per staff member in FY19 fell 27% from the year prior.



However, the top 10% of recruitment agencies increased their profit per staff member by 14%, to a record $114,711. An exceptional result.

Nigel Harse of Staffing Industry Metrics gives his tips on how to avoid the profit pitfall in FY20.

• Focus on staff retention (and address the staff turnover issue)
• Look at ways to improve productivity per person
• Control operational costs by setting a firm budget
• Get better before you get bigger (my fav)

It’s a problem I have seen before, and have been guilty of personally, but these numbers suggest it’s as bad as its ever been. We are seeing record demand for our services and the recruitment industry has had what amounts to a 10-year golden run. But we are spilling most of the potential gains on the floor. We are not reaping the rewards during the good times.

Even scarier, it suggests when harder days hit us, we won’t have the framework, the processes, the margins or management discipline to survive.

The time to act on Nigel’s advice is now.

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