The new profit formula for recruitment
With technology constantly changing, the traditional recruitment model of growing by increasing headcount is becoming increasingly inefficient. The real opportunity lies in embedding your technology in the fabric of your business to create a more profitable and effective model.
The limitations of the traditional recruitment growth model
For years, the formula was simple: add more recruiters, win more jobs, place more candidates, and generate more revenue for your business. But, increasing your headcount every time you need to keep up with demand is expensive. A new hire typically takes 3-6 months to be fully onboarded, become proficient, and start making money.Retention is another issue, as leavers cause costly rehiring and training cycles and yet more delayed time-to-productivity.And ultimately, more people means higher operating costs, resulting in thin EBITDA margins of 5-10%.While this model may still work for some, it doesn’t scale efficiently or sustainably, and you risk being outpaced by leaner, smarter competitors.But by implementing the right technology and transitioning from being a traditional recruitment business to a tech enabled recruitment business, you could increase your EBITDA to 10-15%, and further increase even higher by becoming tech led, increasing the enterprise value of your business for when you’re ready to sell.
How does technology create a more profitable and efficient business model?
By leveraging technology, forward-thinking recruitment firms are creating a more sustainable and profitable business model that scales efficiently. The initial investment in technology pays dividends through increasing productivity, reducing costs and increasing the value of your business.To achieve this, you must completely embrace technology and make it a core component in your business strategy. We call this shift from being a traditional agency to either tech-enabled or tech-led:Tech-enabled recruitment business – Leverages technology to fundamentally transform its operations, customer experience, and business model.Tech-led recruitment business - While tech-enabled businesses use technology to enhance their operations, tech-led businesses go a step further by placing technology at the core of their business model and value proposition.In becoming a tech-enabled or tech-led business, you’ll be able to handle larger demand without adding headcount, maintain consistent quality across all your operations, improve productivity and increase your EBITDA .We have seen our own customers increase their EBITDA using Mercury by making it a key component in their business strategy. By embracing technology, they have achieved a greater competitive advantage, better scalability, increased operational efficiency and reduced costs.
The new profit formula for recruitment
After extensive research, we have created the new profit formula for recruitment:(TA + SE) x S = EVLet’s break it down:TA Technology AdoptionSE Strategy ExecutionS ScalabilityEV Enterprise ValueThe new profit formula demonstrates that by adopting technology as part of your business strategy transforms you into a tech-enabled or tech-led business with the power to disrupt the market. The scalability of a good platform gives you the capacity to operate at high volume and create a more sustainable and profitable recruitment business.
What about the people?
This is about empowering them. With improved access to data insights and task automation, consultants can focus on higher-value tasks, such as building relationships, delivering better service, and closing deals more efficiently.The recruitment and staffing industry has reached a point where embracing technology is no longer optional, but essential for sustainable growth. The (TA + SE) x S = EV formula combines Strategy, Technology, Process and Scale factor to create a more profitable business.If you want to increase EBITDA, reduce operational drag, and build a business that commands a higher exit multiple, then the path forward is not to hire more people. It’s to get more from the people you already have, with the right technology behind them.Click here to read more about how Microsoft's technology is powering next-generation recruitment.Written by Adris Tariq.