Written by Rhys Jones Managing Director – Davidson Gray
Rhys sold out of his previous recruitment businesses in 2012 to focus solely on helping recruiters set up and build recruitment businesses. Follow Rhys on LinkedIn or contact him direct here for help with your start-up recruitment business or for coaching to grow an existing one.
As coaching is the new word for training, business owners now want to ‘scale’ their business, rather than ‘grow’ their business. But just as training and coaching are very different, scaling and growing your business are also different. It is actually very difficult to truly scale a recruitment business, hence why I felt this would be a good subject for a blog.
So, what is the definition of each and why is it so hard to truly scale a recruitment business? The technical explanation for growth is adding new resources to your business such as staff, liquidity and equipment and increasing revenue as a result. Whereas scaling is where a business increases revenue without the need for a substantial increase in resources. Explaining it another way, for growth your costs increase as revenue increases, however if you scale, the revenue goes up, but costs don’t rise in line with that increase in revenue. You can see why scaling is the more appealing, which is probably why it’s now the buzz word for growth. The question is, can a recruitment business truly be scaled as the increase in revenue in recruitment businesses is almost always achieved by adding more staff, predominantly billers, so the costs do go up in line with the growth in revenue?
Scaling is not really appropriate for a service-based business because more work generally means more staff. Scaling is far more suited to, say, a software business. The software businesses have designed a great product, so the growth is then really achieved by taking it to market, selling more of it. They don’t need to manufacture more costly products and need very little additional manpower for each new client, so sales go up, but resources don’t – that’s scaling in its most obvious sense. Read on though – I can give some advice on scaling a recruitment business!
I’m not one for getting too technical on definitions because you can just drift into semantics and lose sight of what you are trying to achieve – the badge or name for it isn’t really important. Plus, I don’t think definitions need to be exclusive. As an example, with coaching, when you are spending one on one development time with a staff member, you will often have some training involved, and some coaching. In this way when you increase the revenue in your recruitment business, it can be part scaling and part growth, to be fair though, it is in the vast majority of recruitment businesses mostly growth. However, we try to help our partner businesses have a higher percentage of additional revenue achieved by using methods closer to scaling. Incidentally, if you are interested in the differences between training and coaching, and why coaching is a bit like scaling, i.e. the more favourable of the two, check out my blog on the subject here.
Ways you can scale your business
The below in isolation won’t necessarily achieve the true goal of scaling, i.e. revenue going up without costs following, however a combination can do a pretty good job.
Scaling your workforce
This is where we touch on the definition again, and for me yes, growth is where you add staff, so not scaling, but for me I’d rather focus on the bigger cost picture and by scaling your workforce’s skills you can, if done right, increase revenue faster than a traditional recruitment business staffing model.
Looking at the math of how this could work, if you have 3 recruiters on £50k a year, all billing £150k each, £450k revenue in total. The business makes 3 x every £ on wages in revenue (excluding operational costs for this example.) If you add another staff member to do the labour intensive lower skilled work for the recruiters, mining LinkedIn, looking on job boards etc e.g. a resourcer, and pay this person say £25k, if done right, this is a form of scaling. The reason is because the resourcer helps each well-paid recruiter delegate some of their work, leaving the biller more time to do the stuff that only they can do that generates more vacancies and closes more placements. If we say each biller then bills an extra £50k, this means an extra 3 x £50k i.e. £150k for a cost of £25k. So rather than add another billing recruiter at a cost of £50k the business gets the same revenue for half this cost by adding a resourcer, so revenue goes up twice as fast as the cost of hiring a recruiter on this new member of staff because you’ve scaled the skills of the recruiters.
The scaling method works on the basis that staff at the various levels in your business only do the work they delegate down because no one who is paid less has the skills to do it or do it as successfully. This way the higher paid members of staff only do the highly skilled work their salary justifies. Now this falls loosely into the definition of delegating, but as I said, definitions don’t need to be exclusive, this is delegating AND scaling.
As a working example for a SME recruitment business, if you imagine the business owner of the recruitment company takes on the role of the brand leader of the business as Richard Branson has previously done for Virgin, admittedly on a much smaller scale. The owner speaks as events, commands respect on social media as a thought leader, plays golf with all the industry’s big names, sits on panels of sector governing bodies etc and all round raises the brand of the company, driving revenue across the board of the company. Only the owner can do this, but the owner then doesn’t close the deals on PSLs, managed service agreements, retained work etc – a lesser-paid sales manager type does this. A sales manager doesn’t recruit for the roles that come as a result of closing this committed work, the lesser paid recruiters do this. And in turn the recruiters don’t do the grunt work on this, they have a lesser paid resourcer to do this. The resourcers also delegate where they can to admin staff. So, as you can see in this very basic model, each pound you spend on salary gets more value for the business as each staff member only does the skilled work they are qualified to do, and do not do the work a lesser paid person can do. In industry, this is called the Runners, Repeaters, Strangers model, and is how manufacturers scale.
The scaling of skills will help your business raise revenue at a lower cost than just adding lots of 360 recruiters, but only as long as it’s done well, and you keep an eye on the numbers to ensure what works in theory is working in practice.
Where I feel that the recruitment industry fails massively is scaling through smart marketing. I call it smart marketing because it’s so easy to do it ineffectively. John Wanamaker, who is considered the first pioneer of marketing, is widely recognised for this quote “50% of my marketing budget works, I just don’t know which 50%” and that’s the key to marketing, knowing what works and what doesn’t. If you don’t measure and manage your marketing well, you can literally throw away money. Smart marketing is a job in itself and even outsourcing it can waste just as much money with some marketing companies willing to spend your money and not measure the return. If you hire in a Marketing Manager, you do also need to understand marketing yourself to some level. I have seen from experience so-called good Marketing Managers flatter to deceive. Don’t get me wrong, I have a huge passion for marketing but there are bad marketeers out there that enjoy successful careers simply because those who employ them don’t understand marketing, so can’t tell if they are doing a good job or not.
The best tip I can give you is if you can measure all your incoming leads, incoming calls, enquiries to your website and CVs that come to your website and leads on LinkedIn, this will tell you how your marketing is working. You must ask as many of these incoming leads as possible, “how did you find us?” Simply logging this data will tell you what parts of your marketing are working.
I mentioned earlier that we help build recruitment businesses that are a lot more along the scaled model than most. The reason is because we are, excuse my French, shit hot at marketing. We appreciate that strong marketing can produce a much better return on investment than staff, plus it can’t walk out of the door, unlike staff. Also, if it helps make billing a lot easier, staff are less likely to leave and staff attraction becomes easier, so making your business both more resilient and easier to grow.
Each strategy we build is designed around the business and bespoke. Some sectors thrive through LinkedIn marketing, some get nothing, some get great results from SEO but for some sectors Google doesn’t have the traffic, so it’s critical that you understand your market and test and measure everything.
Marketing strategies can include PPC, SEO, direct LinkedIn messaging, chatbots, podcasts, blogs, sponsored updates, re-marketing advertising, social media management, brand building strategies, the list is very long, which is why I feel most recruitment companies just play it safe and do what they are good at. And to be fair to them, if they don’t really understand marketing, that can be the best option.
Using new technology to save time and produce better results.
You can use technology to save time and get better results at a relatively low cost. Both time saving and getting better results i.e. improving efficiency is classed as scaling, however what I can say with first-hand experience is that whatever tools you invest in for your business, they will only work if your team buy into them and actually use them. Just because you feel a new tool would and should help, and the benefits are obvious, you have to bear in mind that everyone thinks differently. Recruiters can be awful at embracing change, especially successful ones. They’ve been successful, so they are often reluctant to change what they see as a winning formula. Plus, if it’s free to them, and you ask if they want it and will use it, 9 times out of 10 they will say yes. Whether they actually use it is a totally different matter.
Here are some examples of technology I’ve come across that can improve your business’ results and give you a great return on investment:-
JobAdder – www.jobadder.com
The CRM that most of our partners are using is JobAdder. The feedback that we get is about how much time it saves recruiters. Everything is in one place, reducing the need for hundreds of spreadsheets and even white boards. It’s a multi job poster, and it’s customisable, so it’s suitable for all our recruiters, in all sectors.
Suneese – www.suneese.com
Especially helpful during a job-led market, this vacancy intelligence software finds leads for recruiters by identifying new vacancies advertised. Set up alerts and when a new job is advertised, you’ll be notified, which has been a great way for our partners to find new clients.
Dux-Soup – www.dux-soup.com
Davidson Gray and our partners love this. It generates leads by plugging in to LinkedIn and sending automated messages to a target audience. It’s great for reaching out to potential clients and candidates, plus keeping LinkedIn connections updated with your business. We’ve tested a range of LinkedIn automation tools, but this one has given us the most success both in the UK and Europe.
Yes, definitely try and keep your business ahead of the rest on the technology front but you must measure what actually gets used, and wherever possible what the return on investment is. It’s very easy to say “even if we make one more placement with this tool” for everything, but if you don’t keep a tab on what does actually get used then your costs will go up and revenue won’t, the opposite of scaling!
This is for both making and saving money.
Most recruitment businesses rely on the recruiters to negotiate fees but how many recruitment companies actually train their recruiters properly on the art of negotiation? Fee negotiation is yet to be covered by another blog but look at how improved fee negotiation can lift your profits by 33%!
£2,000,000 perm business working at 30% profit, so £600,000.
Average fee rate to clients was 20%. After training, managers involved more in negotiation and a better process for negotiation, it increases to 22%, so only a 10% improvement, but just look at how it transforms profits.
£2,000,0000, is now a £2,200,000 business which means: –
Profit UP by £200,000 a 33% increase on £600,000
Profit margin on the business up 10% to 40%
All this from increasing the company’s average rate by 10%!
I have excluded from this recruiters’ commissions deliberately as this will vary a lot on how many recruiters are on commission, what the rate is and how much of the billings come from managers and the business owners, but I think you can see the point.
How do you achieve this? As I said, that’s another blog, but here are 2 tips.
Negotiate a fee discount, not a drop in percentage
Try offering your client a reduction of an overall percentage. If you drop a rate from 20% to 18% then it is actually a 20% reduction, which sounds more than reducing your rate by 2%. It sounds even more when put in cash terms. E.g. “Mr/Mrs/Ms client at the salary banding at 20% that’s a fee of £8000. I could be prepared to drop my fee by 20%, so £1600 if you will give me the role exclusively.” Adding the bit on the end asking for something in return does make it sound even more like the client is negotiating you down, plus you get a committed job into the deal!
Give the client what THEY want, not what you think they want.
When negotiating a preferential deal for a client, don’t presume it’s always a rate issue. If a client thinks the fee is too expensive, don’t assume it’s the price. It could be they are more scared of losing the money if the candidate doesn’t last. If something is too expensive, it’s another way of saying it’s not value for money, so establish how they see value in a recruitment service. Would your client pay the rate you want if you gave them a longer rebate period? I had a consultant whose client wanted a 50% fee reduction, at the time we love the most, offer stage. The consultant was raging when he came to me. We did some coaching and he went back to the client to dig deeper on why he wanted the fee reduction. It came out that he’d had too many placements leave his firm during rebate, which made him feel “ripped off”. The consultant said (with a bit of coaching) “if I gave you a 100% 12-month rebate, would you pay full fee and give me all your recruitment exclusively?” Guess what he did? One in four of the future placements fell out in the first 12 months, but what the recruiter got out of this was a lot of exclusive vacancies, so more time filling jobs, less time looking for them. Plus, his average fee for the client, on this 3 in 4 success ratio, was 75% of his full fee, so it was better than he averaged with his other clients anyway.
Very few recruiters get proper fee negotiation training but training on reducing supplier costs is even more rare. One very simple, yet hugely effective, tip for getting a better deal from your suppliers is to sell to them the opportunity of working with you. We often turn off the sales skills when negotiating a better deal, but this can be the best way of getting what you want. Don’t just beat them up on price, sell how much more of their products or services you hope to buy in the future, how you are going to be expanding the business, how you are very loyal with suppliers and getting in with you now could be a very long-lasting account, how you will refer them to other clients, put a web backlink on your website, anything to make you sound like a better prospect.
As I explained, you can’t technically scale a recruitment business, however you can go a long way to increasing revenue without a direct correlation in the increase in your costs. It’s obvious that any business would like to increase profit, but by increasing your business’ profit margin you are adding more security for when the inevitable business bump in the road comes along, like a big dip in the economy. Turnover is to a degree vanity, profit is sanity.
Written by Rhys Jones Managing Director – Davidson Gray
Interested in working with Rhys to grow your start up?
Rhys not only provides the start-up infrastructure for your new business and all the support services your business will need, he can actually work with you to grow it. Take advantage of as much mentoring and coaching as you would like, plus Rhys considers himself a working partner and will take responsibility for the areas that you’d like him to, perhaps those you have the least passion for e.g. Finance and Digital Marketing. When working together on the business’s growth strategy, much of the effort to deliver it can be delegated to the Davidson Gray team.
Book a chat with Rhys here.
If you enjoyed reading this, you can also listen to our podcast on scaling recruitment businesses. If you’re looking to scale a business with the intention to sell, make sure you read our blog Is building a recruitment business to sell a good idea. You can also find more information on how to plan your recruitment business for strong growth in our eBook How to Set Up a Recruitment Business.