Plus, find out how much management and staff expenditure makes your profitability volatile.

Knowing where the profit growth opportunities lie for your staffing and recruitment agency can make the difference between 2018 being a year of success or you experiencing a period of profit volatility.

To help you understand where recruitment agencies in the Asia Pacific Region identify profit growth opportunities, APositive and Staffing Industry Metrics analyse the results from February's HHMC Business Intentions Survey.

The survey led by HHMC quizzed 202 agencies in the Asia Pacific Recruitment Industry. These were the top four profit growth opportunities listed:

1. Upselling into existing customers;
2. Implementing social media marketing;
3. Providing more training for consultants (benchmarked as management & staff cost); and
4. Hiring additional experienced consultants (benchmarked as management & staff cost). 

So, given the importance being placed on more staff and more training it raises a question:

What should know about management and staff expenditure?
To investigate further, we look at the inherent cost of running your team with our standard metric: management and staff expenditure as a % of gross profit (the best way to consider this cost).

This will always be your greatest operating expense and, in ideal circumstances, the percentage cost of your team should decrease over the longer term. However, given the views of the survey respondents, this cost is set to increase in 2018.

Put simply, management and staff expenditure includes: 

• All internal remuneration;
• Bonuses;
• Incentives;
• Rewards
• Super
• Recruitment and training costs

Staffing Industry Metrics aggregated data that was shared with APositive today reveals that the small teams, those with a headcount of one to 10 averaged an annual spend of 54% of gross profit over the past three years. Interestingly, the spend in this area in 2017 was lower than average, the cause being related to staff churn and in some cases a reduced headcount.

 
Teams with a headcount of 11 to 20 staff have seen this cost creeping up year-by-year to a high of 60% in 2017.  This team size recorded an average annual spend of 59% of gross profit over the past three years.

Teams with a headcount of 21 to 30 saw this cost climb to 64% in 2017 with an average annual spend of 63% of gross profit recorded over the past three years. Allowing management and staff costs to rise to these levels will in most instances create profit volatility.

Teams with a headcount of 31 to 40 staff recorded a fall in 2017 to 54% and averaged an annual spend of 58% of gross profit over the past three years.

Here is an overview comparing all team sizes average management & staff expenditure over the past three years.

So, how much management and staff expenditure is too much?

If your management and staff costs sit at 60% or more you should actively be looking to address team productivity as a priority because it's almost impossible to make a healthy profit when these costs exceed 60% of gross profit. If need be you should consider performance managing the lowest and weakest performers and definitely deal with any toxic attitudes.

Reducing this percentage cost will have a positive and significant impact on your profitability.

What's more, to achieve industry best-practice, your management and staff cost should be less than 45% of your gross profit.

Try to focus on productivity rather than spending, settle new staff in quickly and always keep an eye on your metrics.

In case you missed our analysis last month of the key results revealed in the HHMC Business Intentions Survey, read our post Staffing industry survey results are in.