Only doing perm? 3 reasons why you should be placing contractors
UK Recruitment industry turnover increased 11% to £35.7 billion in 2018 (£30.8 billion was generated from temporary placements while approximately £4.9 billion was generated through permanent placements.)
With this in mind, here are three key reasons why you should add a contract desk to your recruitment agency’s portfolio.
1. Placing contractors brings your business a continuous revenue stream
A big difference between perm and placing contractors is that, whilst permanent placements are a one-time deal, contract offers the scope for ongoing work.
What’s more, placing contractors complements perm and provides your recruitment business with a forecastable revenue, for example:
- You place one contractor on a three month contract on a day rate of £400
- You charge the client £500 per day (20% margin – see more about markup and margin)
- Total placement value is £30,000
- Candidate is paid £24,000
- You receive £6,000 in gross profit
The more candidates you have on your books working in contract roles, and the longer the placement durations are, the more profitable placing contractors can be for your recruitment business.
Contract also offsets peaks and troughs in perm recruitment as well as during seasonal lows.
2. Contract division can increase the value of your business
Whilst perm still definitely has its place in recruitment, it falls short if you want to sell your business.
This is where the addition of contract will help you in the future.
Because placing contractors gives an agency a source of ongoing revenue, unlike perm, which offers a fixed revenue. So your business is worth more in the long run.
Ashley Lawrence, Chief Executive Officer at Trinnovo Group discovered during his MBA that a recruitment business that has higher permanent revenue over contract revenue will receive 1-3 times valuation. Whereas, an agency focusing on contract revenue over perm will receive 7-11 times multiple.
This podcast gives a lot of advice on how to calculate the value of your business.
And we also wrote this article on ways to increase the value of your recruitment business.
3. Placing contractors develops stronger trust with your clients and candidates
Businesses can be reluctant to increase their headcount as adding another perm salary would make their fixed cost higher.
Having the ability to turn around to potential clients, as well as your existing ones, and offer placing contractors as a solution to this will result in the following:
- They will appreciate the effort you are putting in to coming up with a solution to their problem and filling the role
- They will consider using you to fill other contract roles across their business
- They will be more likely to recommend you to other businesses looking to recruit
- They will ask you first for contract and perm candidates moving forward
Placing contractors means you can also create ongoing relationships with both your clients and candidates. Keeping in contact during and after the recruitment process shows you care, keeps them motivated and, most importantly, reminds them that you are there. We recently shared some great advice on how to use your customer service to create the best relationships with your clients and candidates.
You’ll also be able to offer more recruitment assistance within businesses, as you can cover both their perm and contract roles, which means your business is more versatile.
Finally, placing contractors brings with it the opportunity to do extended business with your clients, which means one contract role can generate even greater profit for your business.
The freelance and contract industry is continuing to grow. Last year (2018) alone, the UK economy saw the following:
- 4.88m self-employed (15% of population).
- Self-employed workers now make up almost 15% of the UK labour force, close to the European average.
- Record 32.5 million people are employed.
All of these stats highlight just how popular this way of working is. The recruitment agencies who take advantage of this first will be the ones leading the industry. Include contract to your agency’s offering and you’ll see your business grow.