What small and medium size recruitment firms should know about operational costs
When it comes to expenditure for small and medium size recruitment firms, some interesting trends have recently emerged.
Just 10 per cent of recruitment firms in Australia of these sizes are sustaining operational expenses below 65 per cent of their net fee – or gross profit.
To maintain a sustainable business, keeping a watch on expenditure is paramount, and RIBreport recommends doing this by viewing operational expenses as a percentage of your gross profit.
Firstly, what are operational expenses?
RIBreport purges all operational expenses into five key groups:
- Variable expenses – anything that you can turn on or off with reasonable notice
- Marketing expenses – relates to candidate and client acquisition
- Occupancy expenses – relates to rent and utilities
- Management and staff expenses – all remuneration, recruitment and training cost
- Corporate expenses – insurance, legal, IT
Knowing what industry best practice looks like should help guide you to making better decisions about how much you spend.
To help see how your recruitment firm stacks up, we asked RIBreport to breakdown the operational costs for the two most common recruitment firm sizes in Australia. Here’s what the data shows over the past five years.
5 year operational costs for staffing firm with a team size up to 10:
75% to 80% of gross profit is average
63% to 68% of gross profit is where the top 25% of staffing firms sit
53% to 58% of gross profit is where the top 10% of staffing firms sit
5 year operational costs of staffing firm with a team size of 11 to 20:
80% to 85% of the gross profit is Average
68% to 73% of the gross profit is where the top 25% of staffing firms sit
58% to 63% of the gross profit is where the top 10% of staffing firms sit
The above chart provides an insight into expenditure throughout 2016
What happens if you don’t keep your costs in check?
It’s no secret that cost is a major concern for a growing company, and in the world of recruitment the cost is often in place well before your sales start to rise.
One of the reasons for growing a recruitment firm is to find economies of scale, so that operational business expense be dispersed over more sales and gross profit while profit increases. However, according to RIBreport data, this rarely happens. And, in fact, quite often the firm’s efficiencies deteriorate as they grow.
What’s more, poor expenditure habits which may be inherent in your business place greater pressure on your cash flow. And, without cash flow you can’t grow your business.
Top 3 areas where you can save
Marketing – you should spend less than four per cent of your gross profit/net fee
Occupancy – you should spend less than six per cent of your gross profit/net fee
Management and staff – you should spend less than 50 per cent of your gross profit/net fee