Recruitment Insights

Are operational costs eating away your profit?

June 25, 2019
operational costs
Keen to increase your profit margin? Start by controlling your costs. Find out how your recruitment agency compares when it comes to operational costs.

In a relatively buoyant economy with good market confidence, your recruitment agency is likely focused on growth. Growth represents greater revenue, which sounds great on paper. But what’s the point in growing your revenue if your profit doesn’t grow too?

An easy way to boost your bottom line, according to Nigel Harse of Staffing Industry Metrics, is to focus on controlling your costs. In this post, we’ll share some insights around recruitment agency operational costs based on data from 108 Australian and New Zealand recruitment agencies – and why controlling your costs is essential for growing your profit.

Operational costs are on the rise

In the FY18 Staffing and Recruitment Sector Remuneration Survey, 39% of recruitment agencies stated that their number one priority was to improve profitability. However, despite this, operational costs have risen significantly in the past 12 months. This contradiction suggests that some recruitment agencies aren’t connecting the dots between reducing costs and increasing profit. Either that, or they’re avoiding the issue, because it’s usually associated with bad news.

Put simply, there are three ways to increase profit:

  1. Increase sales
  2. Increase productivity
  3. Reduce costs

APOS operating costs

You need to conquer at least one of these factors to achieve profit gains. Controlling your costs may not be the most exciting solution, but it is arguably the easiest.

How do your operational costs compare?

Data from Staffing Industry Metrics shows that recruitment agencies of all sizes – from micro teams to large organisations – have increased their operational costs in FY19.

Teams with 10 or less staff are currently running with average operational costs absorbing 82% of their gross profit. Historically, these micro teams have been the best at keeping their costs low. However, in the past year, their costs have increased by 5% against the prior 3 year average of 78%. Within this group, the most profitable teams have kept things lean, limiting their operational costs to 55% of annual gross profit.

Teams with 11 to 20 staff are currently running with average operational costs absorbing 85% of their gross profit. Like the micro teams, they have recorded a 5% increase in costs against the prior 3 year average of 81%. The most profitable teams within this group have managed to cap their operational costs to a modest 65% of annual gross profit.

Teams with 21 to 40 staff are currently running with operational costs absorbing an unsustainably high average of 92% of their gross profit. These larger teams have always struggled with costs, mainly due to the size demands of building and running a more robust infrastructure. However, in the past year, their costs have increased by a staggering 10% against the prior 3 year average of 84%. The most profitable large teams limited operational costs to 75% of their annual gross profit – well below the average.

APOS operating costs

The missing piece of the profit puzzle

Reducing operational costs is a failproof way to increase profit. That goes without saying. However, when you assess and control your costs, you don’t just get bigger bang for your buck. You ensure your recruitment agency is operating optimally before growing your team. You build a solid framework that supports sustainable growth and, in turn, generates stronger profit. It’s a win-win situation.

So, if you don’t already, take the time to assess your expenditure and consider cost reduction as part of your profit boosting strategy. Also start viewing operational costs as a percentage of your gross profit, rather than simply ‘expenses’. Putting operational costs in this context is likely to give you a new perspective – and prompt you to think twice before spending. You’ve got nothing to lose and everything to gain.

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