Record breaking year for sales, but only 1 in 5 Australian recruitment agencies capitalise on conditions.
The productivity problem.
Australian recruitment agencies had an outstanding year in FY19 in terms of Sales according to Nigel Harse and figures from Staffing Industry Metrics. The company say the first two quarters delivered record breaking sales across both the temp/contract and permanent revenue streams and this growth continued throughout the year despite some major challenges, including the federal election.
However, Harse has also pointed out some discrepancies underlying these trends: “Considering sales were sky high, you’d expect profits to also peak,” he says. “However, when we analysed the results of 104 Australian recruitment agencies, this wasn’t the case. Despite market conditions being the best in recorded history, only 1 in 5 recruitment agencies increased their profit in FY19. That means around 80 per cent recorded a decrease in profit.”
The company point out that productivity is a huge determinant of profitability for recruitment agencies. Productivity can be measured by calculating how much gross profit (or net fee income) is produced by each staff member. Sadly, for many recruitment firms, the increase in work in FY19 didn’t equate to increased productivity. On average, productivity declined by 4 per cent over the course of year, falling from $216,894 per staff member in FY18 to $207,814 in FY19.
While the top 10 per cent of performers increased productivity, the growth was a negligible 0.1 per cent at $296,842 per person.
Perhaps unsurprisingly, staff turnover was largely to blame for poor productivity. With team dynamics constantly changing, many recruitment agencies struggled to keep on top of growing sales. Low fill rates on perm orders were also a factor, with a lot of work falling into the ‘unbillable’ basket.
Another reason for the figures lies in the operational costs recruitment companies face. Harse notes that human resources accounts for the largest portion of expenditure and in FY19, these costs reached a record high, increasing 5 per cent from FY18 to an average of $162,491 per staff member. The final two quarters were especially expensive with staff and management costs blowing out to an alarming 60 per cent of gross profit.
“Remuneration, training and recruitment will always be costly and money spent on keeping a high-performing team together is usually money well spent,” says the Metrics report, “However, these costs should be proportionate to profit, and 60 per cent is an unacceptable amount for any recruitment agency.”