One of the most stimulating projects I have ever been involved in was when I was asked by a global, multi-site, multi-sector recruitment organisation to help them turn a number of their underperforming, loss-making branches back into profitability within 90 days. We had to go into each branch, fix it and then get out, sort of like a SWAT team on a secret mission!
After having spent some time with each of the branches we started noticing some correlations between each of them, and in particular some common trends that sat at the root cause of their lack of profitability.
To remedy one of these trends in particular, I then spent a number of months pulling together a type of financial calculator that allowed each branch manager to not only understand what exactly had a direct (and indirect) impact on real profit, but also how they could make gradual adjustments to different parts of their business to quickly, and in most cases very easily, go from negative to positive profitability.
In one particular case, we identified a series of customers they were recruiting for that each time they made a placement with that customer; they were in essence, losing money. So, the more placements they made, the more money they lost!
On the monthly P&L, lost amongst the sales reports and around the board room table, these customers were the ones that the branch managers salivated over. They had the guise of the “perfect customer” with their well-known brands and high volume requirements – but they weren’t profitable.
They commanded low margins, they sapped time and resources and they treated their agencies as mere providers of a service, not trusted partners. When we calculated the real costs to deliver to these customers, the branch managers we were working with soon realised that the real value of these customers was not aligned to the GP they were measuring them by traditionally.
We set about renegotiating with each of these clients, and in some cases firing them to make an immediate difference to the branches’ bottom line. Next, we set up clearly defined criteria to qualify what profitable customers actually looked like so that all new business consultants in each branch would sell to that criteria when targeting new customers.
Every recruitment agency is different, and you will have different criteria that you deem as valuable to your business, but if you identify seven key criteria (such as brand association, margins, opportunity for growth, ease to work with and so on…) and give each new customer a mark out of five for each of those criteria, you soon start getting a real sense of which customers need qualifying out (unless you can negotiate with them).
Customers that rate a total of 34 or less, you should fire.
Those who score between 35 and 55, you should have a “one-up” sign off process before a consultant is allowed to work with them to justify why we want them as a customer.
The customers that you can mark between 55 and 70 are the ones that you want and the ones that your new business consultants should be targeting.
Understanding profitability is just one small step in the journey to maximising the true return on your sales and delivery effort, but one that can have a very significant and very immediate impact.
I speak in even more detail about using these criteria and rating your clients, which is based off Jack Welch's 'Vitality Curve'. The content is a part of a whole host of videos included free for our members, that'll help them transform their craft and go from good to great Recruiters.