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.