Since recruiting is essentially a sales profession, recruiters typically focus on those numbers that result most directly in . . . well, sales. That makes sense. While a recruitment mindset that focuses primarily on sales is not inherently bad, it can have unintended consequences.
Let’s look at a hypothetical example, shall we?
Let’s say there’s a solo recruiting practitioner. This recruiter does everything: sourcing, screening, interviewing, placing, paperwork, you name it. This solo practitioner bills about $300K per year, and let’s say they get to keep about $150K of that amount.
Now, let’s also say this solo practitioner wants to grow their agency. In other words, they want to generate more profit. So they decide to expand. They move out of their house and lease office space. Then they hire researchers and other recruiters. Then they spend more on hardware, software, and other tools of the recruiting trade.
At the end of the year, the entire agency bills about $1.5 million. Great, right! Maybe not. Unfortunately, the former solo practitioner, who used to working a full-time desk, now has less time to devote to recruiting. They’re more focused on being an agency owner and manager. As a result, the agency barely makes more in profit now than when this recruiter was a solo practitioner.
Why does this happen? How does this happen? And how in the world can you stop it?
Recruitment mindset: billings vs. profit
It’s true that every search consultant wants to increase their billings. They want to fill more job orders. They want to make more placements, and they want those placements to be associated with higher fees. That is pretty much a universal recruitment mindset.
However, a problem can occur when a recruiter focuses too much on billings and not enough on profit. Just like any other business, there are two ways to increase profit in recruiting:
- Increase your billings.
- Decrease your costs.
- A combination of #1 and #2.
Another true axiom is that if you want something to increase, you have to focus on it. Let’s say you want to focus on increasing your billings. That’s fine. So you spend 100% of your time, energy, and effort to increase your billings. And you do! However, your costs skyrocket at the same time. Why? Because you spent 0% of your time, energy, and effort keeping your costs low. So do you increase your profit at the same rate that you increased your billings? Sadly, you do not.
So it goes to reason that if you want to both increase your billings and increase your profit, then you should focus on those activities that lead to both outcomes.
Let’s go back to the example we used above. That example involved a solo practitioner who billed $300K and earned a profit of $150K. Then that recruiter went all-out to grow their agency. As a result of their efforts, the agency’s billings grew to $1.5 million. However, the agency’s profit only grew to $300K. As you can see, there are problems with this hypothetical scenario, including the following two:
- The agency billed five times as much, but its profit only doubled. Using these numbers as a guide, would the agency have to bill five times as much again to double its profit to $600K?
- The agency’s expenses ballooned from $150K to $1.2 million, an increase of nearly $1 million. Meanwhile, its profit only increased by $150K. Once again, using these numbers as a guide, would the agency have to increase expenses by another million dollars to experience a $150K increase in profit?
There’s nothing wrong with having a recruitment mindset for growth. However, how you go about achieving that growth is extremely important. Obviously, you must invest in your recruiting desk and your agency if you want to achieve growth. But HOW you invest in your desk and your agency is critical in determining if you maximize your growth.
The best growth mindset for recruiters
As evidenced by the example above, it is possible to grow, but in a lackluster fashion. You can grow in a way that is not commensurate with the amount of time, energy, and resources that you invest into your recruiting business. And that’s just one facet of this equation. What about the headaches, both literal and figurative, that accompany a person’s efforts to grow their business? Needless to say, the recruiter in our example experienced fewer headaches as a solo practitioner than they did as an agency owner with employees.
And then here’s another aspect. When the recruiter in our example made the transition from a solo practitioner to an agency owner with employees, they spent less time working a desk. That Makes sense. When you spend less time working a desk, you make fewer placements. When you make fewer placements, your billings go down. And when your billings go down, usually your profit does, too. And it almost always goes down if your billings decrease as you make the transition from solo practitioner to agency owner with employees.
So what is the best recruitment mindset for growth?
The best recruitment mindset for growth is one that focuses on both billings and profit. In other words, it focuses on increasing billings through making more placements and also keeping costs as though as possible.
Can you both increase billings and decrease costs as a solo practitioner? Sure, but there’s likely a limit to the degree to which you can increase profits through that approach. After all, a solo practitioner is just one person. They have a personal life. They have to sleep, at the very least. Even if they make as many placements as humanly possible and slash costs, they will eventually hit a “ceiling” and stay there. (And that’s if they can keep up that insane pace.)
At some point, if they want to continue increasing profits, a solo practitioner will have to grow their business. And they’ll have to grow their business by adding employees. But once again, the manner in which they do so is critical to their ability to maximize both their growth and their profit. In the example above, the solo practitioner turned agency owner did not do that. As a result, they did not maximize their growth or their profit.
The role of a recruiting network
This is exactly why many solo practitioners consider membership in a split network like Top Echelon. They want to grow their business. However, they want to grow it in an intelligent fashion. Specifically, they want to increase their billings and keep costs down. Once again, they are only one person. There’s a limit to the amount of job orders they can fill. And that’s exactly why they join a recruiting network: so that their split recruiting partners can help them.
If they have too many job orders to fill, then they share those job orders with their trading partners. If they have excess inventory in terms of candidates, then they share those candidates with their trading partners. So what if they’re splitting the fee? They’re making a huge return on a small investment. They’re increasing their billings, while keeping their costs down, and maximizing their profit at the same time. It’s the epitome of a win-win situation!
Let’s stay you join TE Network™ at a cost of $130 per month. That’s $1,560 per year in membership dues. Let’s say that you make four split placements during your first year in the Network. These are placements you would not have made on your own because you didn’t have the job order, you didn’t have the candidate, you didn’t have time to devote to the search, or some combination of the three.
And then let’s say that the average split placement fee in Top Echelon is $16,000. (Although it’s higher than that.) That means each recruiter receives about $7,500 after TE takes its brokerage fee. So let’s do the math:
$7,500 x four split placements = $30,000
So you spent $1,560 in fees to be a member of TE Network™. However, the return that you received on that investment is $30,000. That is a significant return on your investment. Not only that, but you’ve also increased your billings, kept your costs down, and maximized your profit. And the beauty of it is that it doesn’t matter if you’re a solo practitioner or an agency owner with employees. The formula for success is the same for both.
Membership in a split fee recruiting network fits perfectly in line with the best recruitment mindset for growth. That’s because the benefits of membership check off all the boxes associated with that growth:
- Higher billings
- Lower costs
- More profit
If you want to embrace the correct recruitment mindset for growth, then consider applying for membership in TE Network™. You’ll have the opportunity to share candidates and job orders with over 1,000 recruiters in nearly every industry and discipline within the employment marketplace.
Click here for more information about TE Network™ and click here to apply for membership.