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FY19 soaring, but it's not all a bed of roses

Posted by Nigel Harse FRCSA on 7 May 2019
FY19 soaring, but it's not all a bed of roses

After a stellar FY18 for the recruitment sector, the first 9 months of FY19 continue to be strong, with the first two quarters reporting soaring sales results again. Yet, while on the surface things look rosy, dig a little deeper and you'll start to see some cracks appearing.

Temp and contract sales are well up on last year, with larger firms flexing their sales muscle just that little bit more than others, they're bolstered by structures that tend to easily suck up volume and are able to sustain the loss of a consultant here and there.

The teams that are making some improvement on margins are again the larger players, often because they are coming off a low base due to preferred supplier agreements which tend to be at lower margins. The big agency model also tends to reflect a more mature approach to pricing with less flexibility on their charge rates and a mantra to make hay while the sun shines.

National Average Temp/Contract Sales Australia

In a market that's best described as 'Job Rich and Candidate Poor' you would expect to see temp/contract margins improving, but for many agencies this simply isn't the case. The reality is that if margins aren't improving now, when the market does turn, there's little chance of salvaging any recovery and it's then a race to the bottom.

Perm sales scored double digit growth in these first six months too. But our days of basking in record breaking conditions are, my friends numbered; signs of a slowdown are coming into focus and it really is the final call to get your house in order.

Early numbers into the third quarter of this financial year suggest a fall in perm sales of between 15% to 20% compared to the same time last year.

But while many businesses have been happily reaping growth in sales, the P&L and bottom line tells a different story, with margins and gross profit struggling to keep on the same high trajectory.

So, what does this all mean for you? Well with mounting pressure on operating costs, smaller agencies may find they are quicker to feel the pinch, but these same key factors affect everyone.

Sourcing candidates is tough and requires more flair and less transactional recruiting, while good recruiters are becoming tricky to find and secure and many have inflated salary expectations.

It really is now or never.

It's time to get your strategy in place to ensure you have a robust business that can weather a changing and tougher economic climate in the future.

Look at the financials:

Get your pricing strategy under control and take stock of what and where the business is spending. Breaking any excessive spending habits now is crucial to keeping the business in good shape.

Stay close to your numbers, keep your team accountable and say no to low margin business that is squeezing your profits and sucking up time that could be better spent working on more profitable roles.

Take staff churn seriously:

I can't say this enough; high staff turnover will kill your business!

Take new steps to keep your performers, give accountability and build an inclusive culture that enables staff to contribute, bring ideas and feel valued. Why not think of them as investors? That's what they are, they are investing their careers and financial future in your business!

Losing good consultants is an unnecessary burden to your business and impacts your clients, candidates and everyone else in the team. A tightening market is an unforgiving one and a lack lustre approach to staff retention is likely to leave you in a world of pain.

Plan and then plan some more:

Planning is a wonderful thing, especially when you do it ahead and you do it well. Challenge your current business structure, assess how it might fair in a less buoyant market and take some time to understand what keeps your top performers with you, or what pushes them out the door.

It's time to be brave, to ask the hard questions and take a realistic look at the condition of your business, so when the market does turn you can be ready to face it head on. Ignore these facts and warning signs at your peril, the good times won't last forever!

Nigel Harse FRCSAAuthor: Nigel Harse FRCSA
About: Highly regarded and widely sought after for his knowledge, unwavering passion and innovation, Nigel is a 40-year veteran of the recruitment industry.
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Tags: Business Profitability Perm Sales in Australia Recruitment Agency Profit Staffing and Recruitment

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