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.

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

 

 

The Hiring Managers Role in Recruitment

The recruitment industry is very interesting as there are always 2 parties that need to be considered. What complicates it more is that the 2 parties in question are PEOPLE. There are the candidates and the hiring Manager (+ the Company) . This blog is about the hiring Managers role in the recruitment process.

Yes we have KPI’s for the recruiters and there should be, but why is it not common place to have KPI’s in place for the hiring managers? In most cases it is due to them that the system falls over.

Let me give you an example. We have a client company that we provide a In-House Recruitment function for. The organisation is a largish organisation (approximately 2900 people) and are growing at a phenomenal rate. We have 3 full time and 2 part time recruiters that work with this organisation.

Recently there was a role for a National Sales Manager which was released to the recruitment team. The brief was minimal. Find us someone who can do blah blah and blah who ideally come from these competitor companies or these client companies. We will pay them $150,000-$200,000. That 3 line brief came through on email from the hiring Manager with the closing comment, I want to interview by friday week as I am now on leave for 10 days and can’t be contacted.

Ok, we have 2 weeks, to find the perfect candidate for a 3 line job description.

So, the recruiters did the best they could and gathered a list of 15 good candidates that could all do the tasks specified in the 3 lines and met the salary expectations and either came from strong competitors or prospective client Co’s. They interviewed them all, created a weighted summary report for the hiring manager (so that he could decide who he wanted to interview quickly when he returned from leave) and had the candidates on standby for a quick call to come in for an interview.

The hiring manager returns to work on the Wednesday prior to the friday he wanted to interview. Our recruiters are sure they will get feedback by close of business (COB). COB comes and goes for Wednesday. Thursday, the recruiter in charge, drops by his office. “Jack”, can you please let me know which of the candidates you would like to meet tomorrow? “Yes, Yes! I will get that done in the next hour”. COB comes for Thursday, no information from the hiring Manager. Friday comes and goes, no information. The following week comes. COB Monday, Tuesday, Wednesday, Thursday, Friday come and go, no information despite consistent reminders. This goes on for 5 weeks!

Now keep in mind, that all these candidates are $150,000-$200,000 people, and they are all from competitive companies or end users of this organisations services. Luckily the recruiter had the foresight after week 2 to contact all of the candidates and tell them the role was on hold.

Week 6 comes, and an email turns up saying “I want to interview candidates 1,3,8,10 and 11 from 8am through to 1pm on friday next week (week 7 from when he returned from leave) for an hour each. So the recruiter tries to organise the interviews. Candidate 3 & 11 have accepted other jobs and candidate 1 isn’t interested in working with/for someone who is this disorganised. The hiring Manager is left with candidate 8 & 10, who happen to be the least qualified of the 5 candidates put forward. The recruiter advises the hiring Manager, who is now blaming the Recruiter for not managing the candidates. WHAT, its 8 weeks since we interviewed them!

End result, no appointment was made and more importantly, the damage that was done to the brand was in the market was devastating.

This is a true story. But what could of happened differently? If the management team had a set of KPI’s that they were measured on that were fed back to the CEO then maybe, just maybe they would take this a little more seriously. All they have to do is care about the people who they are trying to attract.

Its unfortunate but I can guarantee you that the hiring Manager in question will not be reading this post as recruitment is such a small part of his responsibility (in his mind). However if he did, I would like to ask a question.

“What makes you think you are more important that the people you are hiring that allows you to treat them with such disrespect? Why would anyone want to work for you? And then consider that these candidates are competitors, past and maybe future clients you are dealing with! Seriously?”

There are very few “excellent” candidates out there. You never know when you will come across one. So treat them all with the respect they deserve. At the end of every recruitment process, even if they have missed out on the role, you want them to be saying, “I want to work with her/him!”

Author: Steve Begg, MD The In-House Recruitment Group

When did In house take the top spot?

This is a great article. Well written and straight to the point. When did In house take the top spot?.

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.

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.

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.

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

Recruit Using Facebook

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

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.

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

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

www.inhouserecruitmentgroup.com

Social Media and Recruitment

Last week I was taking with a  client about using Social Media for recruitment. The conversation went something like this.

Client: we have a “New” Facebook Fan Page so we are all sorted with our Social Media presence, but thanks anyway. 

Me: “that is brilliant, congratulations. How are you going to use your new Social Media presence in your talent sourcing strategy?”

Client: “what do you mean?”

Me: “how are you going to find talent from your Facebook page?”

Client: looking like I asked a trick question, “we will post our jobs on the page and they [the candidates] will come”

Me: “oh, ok. Uhm, how will they [the candidates]  know you are on Facebook?”

Client: another blank look, “I don’t know, doesn’t everyone just know?”

I am not going to go on as I think the picture has been painted. The fact is that everyone thinks if they just build a Facebook page and post their jobs on it, then they [the candidates] will come. Its what I call the “Field of Dreams” theory. 

This particular company had invested over $10,000 (which is ridiculous in itself) to have a Facebook page built only to have someone like me destroy it as they hadn’t thought through the rest of the picture. 

In a brilliant post on www.ere.net titled Great Expectations: The Reality of Finding Talent on Facebook by Raghav Sing (http://www.ere.net/2012/05/18/great-expectations-the-reality-of-finding-talent-on-facebook/) Raghav talks about the fact that using Social Media for recruitment is not about posting jobs on Facebook, it about building a talent community and engaging with them. That’s great, however how do you do build a community and engage with them?

This takes time and resources. To do it quickly, you need to have resources available to trawl the chosen Social Media elements and drop themselves into conversations. 

Social Media is like any other community and it doesn’t like to be sold to. If all you are doing is pushing content onto people they will soon stop listening. 

Here is an example. I was recently in the market for a new Laptop. I walked into a reputable electronics chain and started to ask questions, a fact finding process I needed to got through before I purchased. This quickly turned from a fact finding mission (for me) to a sales opportunity (for the sales assistant). They pushed and pushed for a sale until I walked out of the store. 

Remember, I wasn’t ready to buy so don’t try and make me. I then went to another outlet where I asked the same questions, and received much better answers and no pressure. When I was ready to buy I walked straight past store 1 to store 2 where I bought the laptop, a case, a new router and a printer. Its the “Pretty Woman” theory, although I didn’t feel as though I had to go back to store 1 to rub it in their face.

When it comes to building a talent community, here are some tips

• Build a resource centre to continually comment on relevant topics. (ask us how if you are unsure on this)

• If you are after engineers, talk to engineers, listen to their grievances and use this information as a topic of conversation. 

• Always answer their questions. Never gloss over their concerns. This is your opportunity to address any concerns they may have.

• Remember provide information that is relevant. They don’t care about the amount of leaves in your gutters at home.

• Be consistent.

• Always be there, i.e., if someone asks a question today, they don’t want an answer in 2 weeks time. That moment, thought or topic has passed.

• Don’t try a sell to the audience straight away and please don’t try and close prematurely. You will only drive them away.

There are ways and means you can use to constrain the costs of a resource centre. Have a look around, you would be amazed what you can find to help.

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

Phone: +61 (2) 8005 6299

www.inhouserecruitmentgroup.com 

 

Use Google to Find Candidates

According 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).

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.

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.

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

email: sbegg@inhouserecruitmentgroup.com

www.inhouserecruitmentgroup.com