Operating Costs of a Recruitment Company

Why do recruitment firms charge so much? Today we will take a look behind the veil and analyse the costs of a standard recruitment firm. This is the first of a 3 part series of posts that will cover (or uncover) whats behind the veil of recruitment companies.

Behind the veil

For the last 30 yrs. I have been running medium sized recruitment companies and have been fortunate to experience all sorts of recruitment from industrial recruitment firms through to search firms.

The purpose of this post is to explain the cost structure of these businesses, which in turn will help you understand why some things happen, and more to the point, why a lot of things don’t.

What is a Recruitment Firm?

A recruitment firm is a sales based company, and when I say sales, I mean hard core sales.

Some organisations are very ethical and unfortunately, there are many who don’t know the meaning of ethical let alone being able to spell it.

Some firms do permanent recruitment whilst some do casual/contract/temp and then there are some that do all types of recruitment.

In most cases the only differing factor within a recruitment firm is the people. After all, the process of finding candidates and placing them in roles is not that different from firm to firm, despite what the leaders of the firm may say. However the passion, gusto, imagination and pig headedness of a great recruiter, is what makes them great; because they think differently, and won’t give up.

The structure of a recruitment firm

In general, there are 4 main sections of a recruitment firm.

  1. Operations – which consists of the do’ers – the consultants and line management as sometimes they will carry a budget*
  2. Administration – which consists of the consultant coordinators, administrators, reception, PA’s etc.
  3. Finance – which houses the payroll and accounting functions
  4. Management – which usually has the senior management (CEO/MD etc)

*Individual budgets are used to set expectations for consultants and managers. As a rule of thumb, a consultants budget is 3 times their employment costs, e.g. at a $60,000 TEC, the annual budget would be $180,000.

What is interesting is that all but 1 of the above are cost centres.

The only profit centre is the Operations team.

I made mention of Line Management in the operations section. This varies as in some organisations, managers of teams of consultants have billing responsibility and some organisations don’t.

The costs associated with running a recruitment firm

A lot of people complain about the fees that a recruitment firm charges and in many cases, those complaints are justified. However when you look behind the veil of a recruitment company you will not find a lot of fat.

There are 4 main costs associated with the recruitment firm, People, Rent, Advertising and Insurance, usually in that order.

For example, assume a firm has the following members.

  • 15 x consultants (5 teams of 3) @ $60,000 (TEC) each = $900,000
  • 5 x coordinators/pa’s (usually 1 for every 3 consultants) @ $50,000 each = $250,000
  • 2 x Line Managers @ $100,000 = $200,000
  • 1 x CEO/MD @ $200,000 = $200,000
  • 1 x Office manager @ $70,000
  • 1 x Receptionist @ $40,000
  • 4 x people in finance (including payroll) @ $65,000 each = $260,000

NB: These costs are optimistic and I haven’t included any cost for commission/bonus and IT as assuming it is outsourced.

That is a total annual salary costs of $1,920,000

Rent – Assume there are 2 offices, one in the CBD and one in the suburbs. Therefore rent and associated costs are $300,000

Advertising – Advertising costs are increasing. Years ago an ad on the local internet job boards was around $20. Today these costs have increased and now 1 ad is around $80 (depending on volume discounts). Assume there are 3 ads per consultants (17 including line managers) per week @ $80 per ad = $212,160 per annum

Insurance – Insurance covers workers compensation, public indemnity, and professional indemnity. Insurance Costs = $200,000 per annum

Other – General overhead e.g., electricity, water, consumables, etc @ $3,000 per head per annum  = $87,000

Total expenses = 2,619,000 per annum (and that is being extremely optimistic)

We now need the operations to deliver $2,619,000 (gross profit) in the year just to cover the running costs of the business. Assuming the 2 line managers carry a budget, that is $154,000 per billing head.

Lets break this down a bit.

Assume that the organisation only does permanent work, and the average role being worked on carries a salary (TEC) of $60,000 and the average margin is 15% for the recruitment work. Therefore the average invoice value for the recruitment firm is $9,000.

The firm needs to close 291 roles in the year, (or 17 each billing person) to cover its costs. However, if the average invoice value dropped to $7,000 due to margin pressure, the number of roles required to cover costs is now 374 (or 22 each person).

And that is why, it is hard to get a consultant to drop their rates.

As can be seen from the above, the costs associated with these organisations are not elaborate. They are all made up of people who basically provide a service.

In the next post of this series, we will be exploring why recruiters (in-house/internal and agency) seem so unreliable.

 

Author: Steven Begg Twitter: @stevenbegg  @inhouserecgroup

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Allister posted this the other day and I think it is absolutely brilliant! Congratulations to Andrew Mason. Accountability until the very end.

The Digital Recruitment Blog

This isn’t exactly on topic but I thought it was so good I had to post it!

This is the letter that the CEO of Groupon, Andrew Mason, wrote to his colleagues after being sacked.

This sort of honesty is always endearing, and I believe he is a stronger man for it:

“People of Groupon,

After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding — I was fired today. If you’re wondering why … you haven’t been paying attention. From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that’s hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable.

You are doing amazing things…

View original post 260 more words

Great post Tabitha.

tabitha flack

Caged Animal

You have a phone call, it’s an unlisted number. Who could this be? You answer your phone, curiosity getting the best of you: “Hello?”

“Hi, this is ____ from ____ Recruitment Agency, are you able to speak?”

Oh gosh the dreaded recruiter call, what do you do now? “Can you hold the line a sec?” If you are surrounded by colleagues I would suggest nonchalantly strolling somewhere else in the building. Preferably the broom closet if this is available. Then you fire back, “Ok I’m free to speak”.

But are you really? Part of the job selection and refining process of whittling down a short list to present to a client involves a lot of questioning. We need to find out what your skills are, where your previous experiences lie, what your strong points, and not so strong points are, what are your aspirations, and most importantly your salary expectations?…

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KPI’s – An In-House Recruiters Friend or Foe?

Thirty years ago the recruitment industry was being run exactly the same as today, however back then there was no such thing as the internet, databases, iPhones, SMS notifications, emails, Skype, Twitter, Facebook, LinkedIn or even ATS/Database. There was no such thing as internal or In-House Recruiters, we were all agency recruiters.

Index Cards

We had 2 sets of cards on a desk, a shared facsimile a telephone book, and of course, the telephone. One set of cards had our clients and prospects in it and the other set of cards had your candidates, and you never mixed the two.

Good recruiters kept close to their clients but more importantly they knew their candidates’ every move. They knew what roles they were going for, through which agency and even had a list called the Traitor List, which consisted of candidates who had deflected to another agency – how dare they.

The good consultants knew their numbers.

  • They knew that if they put 5 people in front of decision makers, they would get a placement.
  • They knew that if they had 50 candidates and knew exactly what they were looking for, they could find jobs for them; so they stayed close and built relationships with the people. (see this great post building relationships)
  • They knew that if their candidate went to another agency, then they [the other agency] would probably place them
  • They knew that  each ad would bring in a certain number of candidates.
  • They knew the cost of getting a candidate and valued that cost
  • They knew that you don’t advertise on a long/holiday weekend as no one looks for jobs on holiday weekends and it was a waste of money.
  • They knew that if you didnt get back to applicants in 3-5 days, the applicant was gone.

Back then, the more people you spoke to, and the more people you introduced to hiring managers, the more placements you made.

Today, nothing has changed. The more people you introduce to hiring managers, the more placements you will make. However, one major change has occurred, recruiters now have all the tools you could possibly imagine and, unfortunately, they have become lazy.

Thats right, lazy. “How dare you” I can hear coming from readers, “I am not lazy!” Yes you are……..in comparison to the good consultants of 1983.Lazy Consultant

In a massive generalisation (which I am leaving myself open with), In-House, Internal or Corporate recruiters today have it easy. They throw an ad on an internet job board, have a look on LinkedIn and wait. How many of them know what the cost of acquisition is for a candidate, what the cost and efficiencies of the different types of internet job boards are, what their candidate utilisation rate is, how a poorly worded ad effects candidate utilisation. The answer is 2-5% of the internal (we wont even start on how many agency recruiters know) recruiters are versed in such language.

The costs of an Internal / In-house Recruitment team is massive. If a company has 5 recruiters on an average of $70k (TEC) per person, that is $350,000 in salaries alone. Couple that with advertising, LinkedIn membership, overhead, ATS/Database subscriptions, IT cost, and you have close to $700,000 worth of annual investment. So a company has a right to demand certain KPI’s be met.

Here are the KPI’s we (The In-House Recruitment Group) use with the in-house teams we run for our clients

  • Time to hire – time taken to fill the role
  • Cost of candidate acquisition – Monthly/Quarterly cost associated with candidate acquisition.
  • Cost per hire -total cost per hire including recruiter time, candidate costs, advertising etc.
  • Candidate utilisation – number of candidates in the database that are being utilised. If they are not going to be used, they shouldn’t be in the database
  • Advertising channel efficiencies – measuring the number of candidates (not applicants) that come from each ad and the costs associated
  • New hire turn-over – fall off rate of new hires
  • Applicant : Candidate ratio – how many applicants become candidates
  • Candidate : Interview ratio – how many candidates are interviewed by hiring managers
  • Interview : offer ratio – how many interviews to offer.

By using the above KPI’s we are able to ensure our recruitment teams are as efficient as possible. As they say, if you measure it, you can manage/improve it, and if you can improve it, then everyone is happy.

So, are KPI’s the In-House recruiters’ friend or foe…………….

For more information on KPI’s for recruiters, contact us at www.inhouserecruitmentgroup.com or click here to complete our contact form.

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This post was written by Steve Begg, MD of In-House Recruitment Group. Steve can be contacted on +61 (2) 8005 6299.

Negotiate, Negotiate, Negotiate

Negotiate With Your Agencies
The purpose of our blog is to provide tips and tricks to improve the efficiency of recruitment in your organisation. The tools, tips and tricks that we share with you are taken from over 30 years in recruitment. We know our stuff and are prepared to share it with you.
Reduce your agency costs
Recruitment agencies are doing it tough. With a reported 3000 + agencies in Australia there have never been more recruitment companies in the Australian marketplace. As a comparison, there are apparently, 6000 recruitment companies in the US with a population of over 300,000,000. What was Australia’s population again?  Oh thats right, 22,000,000. That makes our recruitment market around 10 times more competitive than the US!
Couple this with the number of In-House Recruitment functions that are established and you have a rapidly diminishing market.
Therefore, negotiation is now one of the first things you should be doing with your agency of choice. Why? Because you can!
The standard rates are fixed (at least that is what they will say to you) however I guarantee you, if you asked them to take 25% off, they will.
However, I strongly suggest you give something in return; a reason for them to say yes.
Here are some suggestions.
  • Give them exclusivity for a period of time, e.g., 3 weeks. It costs you nothing and gives the recruiter a chance to tackle this role head on with no interruptions
  • Pay 20% upfront. This takes you to the top of their pile of jobs as you have already paid a component. It also shows the recruiter that you are serious.
  • Refer them to other parts of your organisation; obviously after they have finished the assignment and proven themselves. This once again costs nothing but is priceless from a recruiters perspective

Obviously, the other option on reducing costs is to establish your own in-house recruitment function which is easier than you can imagine. To find out how, simply call 02 8005 6299 or click here to visit our website and complete the form and we will call you.

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Recruit Using Facebook

With an estimated 800 million active users, it is no doubt

Facebook Logo

there are people on Facebook looking for a new job, however how do you let them know you have a role for them? And is it as easy as just throwing an ad up and waiting for the responses to come in?
Well, unfortunately, no it isn’t.
It is important to note that mediums like Facebook, Twitter, and LinkedIn are all totally different to an internet job board.

With an internet job board you almost have unlimited space to write your ad and the teaser. With Facebook (and the like) you have to create the teaser and then have to direct the reader (or clicker) to somewhere to get the rest of the information. It is that re-direction and how to re-direct which is the part that complicates the process as most HR professionals are not technically savvy enough (sorry but its true) to build a landing page or even hyperlinks, and more to the point, they don’t have time.

Don’t panic, keep, reading, I will teach you how!
In addition to this, the title on a Facebook advertisement can only have 25 characters and the body has a maximum of 90, so it is less than twitter. The figure below (figure 1) is an example of a Facebook Ad
Figure 1
As can be seen from the Seek ad in figure 2 below, the ads on Seek (and other job boards) allow us to provide a whole bunch more information in comparison to the Facebook ad in figure 1.
Seek Ad
Figure 2
So, how do we advertise on Facebook?
First, you have to go to www.facebook.com/ads. You will need to be logged in to your personal account. Then complete the form below. Make sure you select external url in the destination box.
Figure 3
For those of you who have access to your companies website and can make changes, simply build a landing page that provides more information on the role/s that you are advertising. Take the URL of that new page and insert it into the destination box.
However, for those of you who don’t have access to your web presence, here is a FREE tip . I am assuming you are still using internet job boards. If you have a role/s that you would like to take to Facebook, then use the url of the ad on that particular job board. What is a url? URL stands for Uniform Resource Allocator and it is the address the internet uses to find a page. It is easy to find. It is in the address bar of your internet browser. Assume the ad you have is a seek ad. Find it via your browser, not through your ad portal and copy all of the stuff from http:// blah blah blah onwards.
The above url is the address for the ad shown in figure 2 above. If I were to have that as the destination url in my Facebook ad, then the person who clicked on the ad will be taken to the ad on seek. From there they can find out more about the role and then apply by clicking the apply button. All done! Who needs IT :).
Then all you have to do is become creative enough in building the title and body of your Facebook ad, to attract the attention of the Facebook users, your audience.
Once you have completed this, you then are asked to build your audience. This is a critical part of the advertising process. Make sure you have a good understanding of where and what your applicants do and are. If they need to be located in the south of your state, make sure you build something in there to help Facebook know who to show the ad to. For  example, think of local football teams, or shopping centers in the area that you can use to

Facebook Audience InHouse Recruitment Group

hone in on the right audience. For example, a company in Sydney’s southern suburb of Cronulla in NSW is looking for 20 people to join them. When they post the ad on Facebook, it is a waste of time and money if people in Brisbane are seeing the ad. They can safely assume that people who follow Cronulla Sharks or follow Miranda Westfield, are probably linked to the area somehow.
After all of this, you have to build a budget which consists of a cost per click (CPC) and a daily budget. The CPC is the costs it is going to cost you each time a person clicks on the ad. It is usually a range and is dependant on the demographics you have stipulated prior to this section.
The daily budget is the total amount you want to spend per day. Facebook will pull your ad once you have reached this amount.
If you are still not confident in moving forward with advertising on Facebook, call us on +61 (2) 8005 6299 or click here and complete the Contact Form and we will be in touch asap. We will be glad to help
Author: Steve Begg, Managing Director, In-House Recruitment Group
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Use Google to Find Candidates

Google LogoAccording to Wikipedia, 74% of people using the Internet use Google as their search engine. There are over 1 billion searches are entered into Google every day!

So if people are using it find jobs, how do we use Google to find the people looking for jobs?

You cannot so much “find” the people however you can wave a big red flag in their face saying hey look at us if they search for certain jobs, in a certain area via Google Adwords.

Google is a great tool for organisations that employ lots of the same people. For example, cleaners, sales people, trades people, blue collar staff etc.

Note: If you are looking for 1 person, then I wouldn’t suggest this as sourcing strategy. Call us and we will try and help you.

How Do We Do This?

Let’s use an example, cleaners. The first thing we have to do is find out if there are enough searches being performed on these words. To do this we use the Google Key Word Tool (click here to go to tool) which is a brilliant piece of free technology that allows you to find out how many searches are performed for particular words/phrases.

Using the Google Key Word Tool, enter in your key words or phrases (as seen below in figure 1).

 Google keywords tool

Figure 1

If there are a lot of cleaning jobs, you may want utilise the location and enter something like ” cleaning jobs sydney”. The tool will tell you the average number of searches performed globally and locally per month.

As an example, here are the local searches for cleaning jobs by capital cities.

City

# of searches

Sydney

5400

Melbourne

3600

Brisbane

2900

Perth

1900

SA

1600

As we can see from the above table, there are 5400 local searches per month in sydney for cleaning jobs. If you are an organisation that employes cleaners, you need to be amongst that! More importantly, as can be seen from below, there is only one employer coming up in the search, the others are job boards.

 Google Ads - Cleaning Jobs Sydney

Figure 2

Once we have identified there is a market, we have to build the ad. Again, Google ads are small and need a destination. Please don’t just link to your website. The destination needs to be a specific page which the clicker feels is a natural extension of the Google ad.

Once you have a landing page or destination, go to Google Adwords (click here) and start the process of building your ad. You will need to be very specific on what words are your key words, and what you do not want included. For example, if we were looking for cleaners, we don’t want cleaning companies to click on the ad, so we insert that in the “Exclude Items” box.

The rest of the process gets a little sticky, so I am going to break that out into another topic. However if you cant wait for the 2nd instalment, then please call us on +61 (2) 8005 6299 or email us at info@inhouserecruitmentgroup.com and we will guide you through it.

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Author: Steve Begg, Managing Director, In-House Recruitment Group

email: sbegg@inhouserecruitmentgroup.com

www.inhouserecruitmentgroup.com