Blog

APositive Insights Logo web

Progress and predictions

Despite record sales in the first half, recruitment agencies can’t afford to bank on constant growth.

The first half of FY19 has seen strong growth for Australian recruitment agencies, with record breaking sales in the first two quarters. However, according to Nigel Harse of Staffing Industry Metrics, who analysed data from 98 Australian recruitment agencies, the boom may subside in the second half. To rise to the challenges that lie ahead, recruitment agencies need a strategy – and to fix the leaks in their bottom line.

Sales soar in the first half – but what goes up will come down

Nine months into the financial year and temp sales are flying. Reported results are well up compared to FY18, with larger recruitment agencies reporting the strongest growth. This is likely due to their strong focus on the temp/contract market – plus the fact they’re very well equipped to handle volume.

 

APOS blog FY19

 

Perm sales also peaked in the first 6 months, with many recruitment agencies reporting double digit growth on the prior year. However, things have started to slow in the March quarter, with early numbers suggesting a 15% to 20% fall on the same time last year. As a result, the FY19 year-to-date results are slightly down on FY18 for recruitment agencies of all sizes.

It’s no surprise that perm sales are slowing in the lead up to the federal election. However, if they continue to drop, so will profitability and it will happen quickly.

Strong sales don’t equal revenue

Despite the job-rich and candidate-poor market, many recruitment agencies failed to capitalise on the very favourable conditions in the first half.

The recruitment agencies that did report healthy gross profit growth were generally those with larger teams. This is thanks to steady but continuous work from preferred supplier agreements providing better economies of scale, less dependency on individual consultants and often combined with a more strategic approach to pricing. Compared to their smaller counterparts, larger recruitment agencies tend to give consultants less flexibility to negotiate on charge rates. They also know the importance of making hay while the sun shines.

Sadly, many smaller recruitment agencies struggled to boost their bottom line, reporting negligible growth in the first half of FY19. This means they’ll feel the pressure when the market flips and the loss of just one high yielding client could wipe out much of their profit.

Buckle up and be proactive

Despite the early signs of a drop-off, particularly in perm sales, there’s still plenty of work to go around. The market is still buoyant, but for many there are some important but tough problems to solve.

Problems to solve

Operating costs are becoming an issue for agencies of all sizes. It’s getting harder to find and place those great candidates, tougher to retain reliable consultants, and more difficult to meet the high salary expectations of experienced recruiters. Add the ongoing issue of staff churn, which shows no sign of slowing down, and it’s easy to see how profitability can suffer – particularly for smaller teams.

Despite how busy your recruitment agency may be, now is the time to nail down a strategy that will carry you through changing times. Get control of your pricing and margins, dump unprofitable work and clients, reduce excessive costs, and focus on retaining staff. These are the things that are best done now – not when the market turns.

Need help with your strategy?

Our previous posts on how to drive greater profits and how to increase staff retention are great places to start.

Recommended Articles