21 June 2017

Is that a muddy, smelly swamp I see at the end of the lowest-price highway?

In a recent conversation with a recruitment agency owner, we were discussing the latest demands for margin reductions. He informed me that one of his clients wanted to include his agency on the (ASX-listed) company’s PSA to supply IT contractors. On the surface, this would appear to be good news. However the sting in the tail was that the PSA margin being requested was $12 per day. Yes, you read that right; $12 per day. 

That’s $1.50 per hour for highly skilled professionals. The contractors did work for the client for many months but still………$1.50 per hour?

It seems extraordinary that any agency, no matter what volume of work they are receiving, would provide skilled talent at such a rate, yet clearly it is happening. How demoralising.

Another agency owner asked me whether a six month full money-back guarantee was becoming a more common request from clients, especially PSA clients. If clients are asking for this type of guarantee then you can be sure they are getting it, at least some of the time. Why would we accept 100% accountability for the performance of a candidate when we have zero control over how the client onboards and leads that new employee?

And don’t get me started on no temp-to-perm fee after three months. After completing a three month home renovation, I don’t see any builders being asked by their client to build a shed for free because ‘you’ve already earned your money’. The builder would look at the owner incredulously and respond “but this is a different job you’re asking me to complete and therefore I’ll charge you a separate amount, specific to that job. An extra service means an extra fee, that’s basic commerce”.

Of course the recruitment industry, all over the world, has seen many changes to the competitive landscape in the past two decades. Margins have declined in the face of a greater number of agency competitors, larger in-house recruitment teams and technology platforms for talent marketplaces becoming commonplace.

But as an industry where do we draw the line?

When do we say ‘no, enough is enough’?

We have all had the experience that the clients who demand, and receive, the lowest fees or the thinnest margins or the longest guarantees or the most generous payment terms are those most likely to complain the loudest when things aren’t to their satisfaction.

I am don’t know  how a recruitment agency can genuinely make a profit with contractor margins of  $1.50 per hour or provide full refunds for a departure (voluntary or involuntary) within the first six months of a candidate’s tenure or give temps away for free after three months. Why work so hard to deliver a service to then receive so little financial return?

At $1.50 per hour you couldn’t afford to have your best consultants working on the account – they would have to place a lot of long term contractors to make a decent bonus or commission.

If your service is genuinely high quality then why would you supply talent for $1.50 per hour? If you are doing so, surely you are just teaching your clients to buy on price, not value, and as sure as they decide to work with you for price reasons, they will leave you for a lower price at some future point.

As Chandler Macleod and the Australian Defence both discovered to their public embarrassment in 2010; sometimes there is a muddy, smelly swamp waiting at the end of the lowest price highway.

Do you really want to take that route?

Stand up for your service and stand up for your pricing. If you won’t, who will?

Nobody likes ending up in a swamp, because once you’re in it, it’s very hard to get out.

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8 comments:

  1. It would ne intersting to know if the $12 was for client sourced contractors. Thhe math changes if thats the case because then its a financing deal.

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    1. No, it is for agency-sourced contractors, Mark.

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  2. Probably the same recruiters selling the plutus payroll dream, and yes they were selling it as much as the plutus staff. The problem is, these people don't know how to sell and are desperate, so they drop their pants. This will only continue.

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    1. I think very few recruiters knowing how to sell value is one of the major problems our industry has. in my experience there is negligible training in this important area.

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  3. Hi Ross , I attended a visit today of one of my 'clients'.

    I had placed with them last year (for the first time) and when they wanted me to negotiate fees I wouldn't countenance as a) when I found out about the role and chased the lead , he said he didn't want to use any more agencies and b) when I emailed a candidate over to him , who he then wanted to meet, my candidate was one of 7 so , quite frankly , this was no negotiation territory , much to the chagrin of the COO.

    However I took the hiring manager and COO for lunch , dropped off bottles of champagne at Christmas and they were generally happy with my candidate and we all got on well.

    I’ve stayed in touch with them throughout the last year (obviously). However I heard he was recruiting again and yes! - he had instructed 3 agencies to source his new role. Why wasn't I invited to the party? Because I hadn't given them the 2% discount he wanted last year and the other three had. He invited me to come in for a chat and I asked him what the service was like from 3 agencies who know realistically they have 1 in 3 chance of filling the role?

    And he was positive. He was getting lots of resumes (which he enjoys 'scanning and reading and assessing) and he now has three candidates for final interview of which he liked. I know for a fact that one of the recruiters he's using is very good (I don't know who the other two are generally speaking the competition in my market are all very good) The point of all of this is that because 'the few' do bend to the will of our clients , we then feel we all have to.

    If people just refused to play ball with ludicrous demands from clients then these demands would stop overnight. But we don't. We often blink first (instantly) and the merry dance continues!

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    1. I cannot disagree, Captain. It's hard to be the one who says no and then watches the resume race play out in front of his eyes to his own commercial loss. Clients are quick to complain about poor service from agencies then engage in 'lowest price wins' auctions even when a slighter more expensive agency had delivered a better result previously. Crazy stuff. I feel your pain.

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  4. 3 month temp to perm fees are being done by almost every agency up this way. $1.50 per hour margins are definitely common place, we get beaten all the time on lower margins. The big clients in particular don't care. Ross one of your favourite large agencies beat us on a large client recently quoting $4000 per perm placement for ALL placements from Operators to Engineers, Accountants, etc.

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    1. Procurement runs the show with most of them in terms of recruitment and the reality is most of those large companies then gain a recruitment relationship that is great for hiring average candidates and poor for hiring the best. You can only assume these companies don't really know the difference between the two, or don't care.

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