agency % cut from a contract role?

[blindswelledrat]

THere are dozens of costs you won't even think about when analysing a recruitment business.
Cashflow, bad debt, credit insurance to name 3 that spring to mind (the latter two total about 3% of turnover in my sector)

[Original Poster]

Smallend said:

I've skimmed through the responses, and I don't see anyone referring to cash flow.
Surely this is a large advantage to a one-man-band Ltd Co contractor, and therefore another reason for there being a reasonable margin being charged?

If the agency pays you on say 7 to 14 day terms, the likelihood is that they are not going to see that back from the client for another 60 days.

Multiply the cost of that cash out of their account / the cost of factoring that outlay, by the number of active contractors they have, and that's a pretty large overhead.

Exactly this, we pay temps every Friday and invoice on 30 days, we can sometimes be out of pocket (albeit temporarily) for very large sums of money which equals a big risk.

95% of people do not understand all the ins and outs of running an agency to have a true opinion, hence why 95% of people think we charge too much.

[Dupont666]

Original Poster said:

Smallend said:

I've skimmed through the responses, and I don't see anyone referring to cash flow.
Surely this is a large advantage to a one-man-band Ltd Co contractor, and therefore another reason for there being a reasonable margin being charged?

If the agency pays you on say 7 to 14 day terms, the likelihood is that they are not going to see that back from the client for another 60 days.

Multiply the cost of that cash out of their account / the cost of factoring that outlay, by the number of active contractors they have, and that's a pretty large overhead.

Exactly this, we pay temps every Friday and invoice on 30 days, we can sometimes be out of pocket (albeit temporarily) for very large sums of money which equals a big risk.

95% of people do not understand all the ins and outs of running an agency to have a true opinion, hence why 95% of people think we charge too much.

You do charge too much...

If you have cash flow issues then its you issue with your client (bank, other company, etc)...

But as someone else has said, he negotiated a £4 an hour raise himself, how do you as a recruitment person justify that his agent rang him up with the good news of a 50p an hour raise?

So for an extra 50p raise to the candidate you would charge the client £3.50?

I have a very good friend that owns his own recruitment company and I know exactly what effort it is to get clients, but when you have them and a relationship, its no effort what so ever...

As for charging he claims a one off fee for Permies and pays the temps via his own company and he claims quite a lot of their wage for doing so.

The only thing that gets him is when a candidate pulls out or is fired and he loses the fee... that is the only issue

[TuxRacer]

Maybe I'm naive, but I don't see how cash flow issues should cause an entire industry to raise prices.

[blindswelledrat]

Dupont666 said:

You do charge too much...

An average recruitment company is less profitable proportional to turnover than most industries.

[blindswelledrat]

TuxRacer said:

Maybe I'm naive, but I don't see how cash flow issues should cause an entire industry to raise prices.

Simply the cost of borrowing money. Prices arent raised to accomodate this it is just an inherent cost of running a recruitment company (and almost any other company). The amounts are just higher in recruitment

Edited by blindswelledrat on Thursday 17th June 12:34

[Dupont666]

blindswelledrat said:

TuxRacer said:

Maybe I'm naive, but I don't see how cash flow issues should cause an entire industry to raise prices.

Simply the cost of borrowing money. Prices arent raised to accomodate this it is just an inherent cost of running a recruitment company (and almost any other company). The amounts are just higher in recruitment

Edited by blindswelledrat on Thursday 17th June 12:34

No more so than setting up a solicitors, but once you have got through the first 12 - 18 months you should have a nice wedge or contingency pot in case anything is late??

[blindswelledrat]

Dupont666 said:

No more so than setting up a solicitors, but once you have got through the first 12 - 18 months you should have a nice wedge or contingency pot in case anything is late??

Not if you are expanding, no.
THe amount of money needed to run and grow a recruitment company is waaaaay out of proportion with any profits it might make.
If you are a one-man band agency-then what you say is possible.
For a growing company, then it isn't.

[Dupont666]

blindswelledrat said:

Dupont666 said:

You do charge too much...

An average recruitment company is less profitable proportional to turnover than most industries.

how so?

My friend was in printer sales and if he placed someone (circa £30k) that would be a £4.5k fee (15% so below the 25% others are quoting), all he had to do was 2 a month to come out with nice healthy profit, even after the office space in london bridge, all bills, paying the Temps (he made £400 a month off them only), etc...

I have now persuaded him to move away from this as its a dying market (shrinking by 30% a year) and hes now in IT sales and making more money!!

Im currently helping him into the IT development/BA market as he wants to see what its like...

[Dupont666]

blindswelledrat said:

Dupont666 said:

No more so than setting up a solicitors, but once you have got through the first 12 - 18 months you should have a nice wedge or contingency pot in case anything is late??

Not if you are expanding, no.
THe amount of money needed to run and grow a recruitment company is waaaaay out of proportion with any profits it might make.
If you are a one-man band agency-then what you say is possible.
For a growing company, then it isn't.

But if that is the case, what you are saying is you eyes are bigger than your mouth and it serves anyone right if they fail doing that as the risk is huge, when you could take your time and expand at a more natural rate.

[blindswelledrat]

Hence the use of the word "average".
Your anecdote about a one man and a permanent fee is not applicable to the average company with overheads.

[Dupont666]

blindswelledrat said:

Hence the use of the word "average".
Your anecdote about a one man and a permanent fee is not applicable to the average company with overheads.

He is a company with all the overheads of a normal company... he used to employ someone until he found out what a fkwit he was and that was 3 months wages (£32k job) that he had to find and his employee made nothing in the 3 months... so its not like hes working from home.

[blindswelledrat]

Dupont666 said:

But if that is the case, what you are saying is you eyes are bigger than your mouth and it serves anyone right if they fail doing that as the risk is huge, when you could take your time and expand at a more natural rate.

You ought to move to CHina or North Korea where they have a similar entreprenurial attitude to you.
That isn't an argument about recruitment companies it is applicable to any company that is ever formed.
Take risks? Grow? Try and create something bigger and better?
Or say to yourself "That'll do me. Im no good for more"

[blindswelledrat]

Dupont666 said:

blindswelledrat said:

Hence the use of the word "average".
Your anecdote about a one man and a permanent fee is not applicable to the average company with overheads.

He is a company with all the overheads of a normal company... he used to employ someone until he found out what a fkwit he was and that was 3 months wages (£32k job) that he had to find and his employee made nothing in the 3 months... so its not like hes working from home.

You are both contradicting yourself and making my point.
If he has overheads then one 3k permanent fee is not going to see him right for 2 months, as you suggested. £3k wouldn't even cover his own salary for 2 months let alone overheads.
And your fkwit employee story just makes my point. In order to grow- things like that are commonplace. You need to account for that

[Dupont666]

blindswelledrat said:

Dupont666 said:

But if that is the case, what you are saying is you eyes are bigger than your mouth and it serves anyone right if they fail doing that as the risk is huge, when you could take your time and expand at a more natural rate.

You ought to move to CHina or North Korea where they have a similar entreprenurial attitude to you.
That isn't an argument about recruitment companies it is applicable to any company that is ever formed.
Take risks? Grow? Try and create something bigger and better?
Or say to yourself "That'll do me. Im no good for more"

No it was like that, calculated risks are good, but over stretching one self and the company to the fact if a few payments are late its in the st is not something that any good business should do.

Its exactly the same with contractors, most contractors I know get a bank balance of £30k to use as a nest egg and then spend money safe in the knowledge that the nest egg will be there for lean times... its just safe business sense rather than risk everything, piss it up a wall hoping that the next payment doesnt default otherwise its up st creek time...

[Dupont666]

blindswelledrat said:

Dupont666 said:

blindswelledrat said:

Hence the use of the word "average".
Your anecdote about a one man and a permanent fee is not applicable to the average company with overheads.

He is a company with all the overheads of a normal company... he used to employ someone until he found out what a fkwit he was and that was 3 months wages (£32k job) that he had to find and his employee made nothing in the 3 months... so its not like hes working from home.

You are both contradicting yourself and making my point.
If he has overheads then one 3k permanent fee is not going to see him right for 2 months, as you suggested. £3k wouldn't even cover his own salary for 2 months let alone overheads.
And your fkwit employee story just makes my point. In order to grow- things like that are commonplace. You need to account for that

Which is why the stategy of getting a health bank balance there just in case is the right way to go and hence he could afford the 3 months of paying wages with no return...

[blindswelledrat]

But what on earth do you purport to know about calculated risks within the recruitment industry?
HOw can you anecdotally claim that a recruitment business shouldn't borrow money because its too high a risk for it?

What about this scenario:
A recruitment company is borrowing £1 million at any one time and makes £200k profit after interest.
The following year it budgets to employ 5 more people at £50k which will increase turnover by 50% and increase profit to £270k after interest.
TO do this will require total borrowings of £1.5 million.

What does it do?

[blindswelledrat]

Dupont666 said:

Which is why the stategy of getting a health bank balance there just in case is the right way to go and hence he could afford the 3 months of paying wages with no return...

SUre- but that's not where the borrowing comes from.
Say your friends saved £10k knowing it would enable him to recruit someone new for 4 months.
THis person turns out to be good and within 2 weeks he has 20 contractors working for him. The following week he needs to find £13k to pay those contractors. And then another 13k the week after.
BY the time he gets paid 9 weeks later he needs over a £100k to pay the contractors in advance-thus he must borrow it.
Your argument is that he shouldn't take on that business if he can't pay the contractors.

[bigandclever]

blindswelledrat said:

Dupont666 said:

Which is why the stategy of getting a health bank balance there just in case is the right way to go and hence he could afford the 3 months of paying wages with no return...

SUre- but that's not where the borrowing comes from.
Say your friends saved £10k knowing it would enable him to recruit someone new for 4 months.
THis person turns out to be good and within 2 weeks he has 20 contractors working for him. The following week he needs to find £13k to pay those contractors. And then another 13k the week after.
BY the time he gets paid 9 weeks later he needs over a £100k to pay the contractors in advance-thus he must borrow it.
Your argument is that he shouldn't take on that business if he can't pay the contractors.

Surely in that (hypothetical) case the agent would actually incorporate, as much as he can, whatever payment terms he has with the client into the contracts he has with the contractors. The agent is a mug if he signs up to (say) 90 days with the client and then signs up the new contractors to (say) 7 days payment terms.

Unfortunately, in the real world, the pimp argument of "it's more risky for me because I pay you before the client pays me" can time and again be proven to be guff when the contractor simply says "OK we'll share the risk - you pay me when you get paid and don't charge me for the 'factoring'"... it never suits the agent.

[blindswelledrat]

Not so, B&C.
Firstly- clients dictate payment terms not suppliers.You offer to supply someone strictly on 7 day payment terms they will tell you to fk off and go to one of the many other agencies out there. Even if you were in a position to- you would just look 'tinpot' to any prospective customer.
And in many industries companies use agencies to enhance thier own cashflow and no other reason!

Secondly- I can't speak for all industries, but if I offered 100 contractors 3% extra in thier wages to get paid when I got paid, 98 of them would say no.

Thirdly- why should you? It's a business model that worksthe world over in every growing industry. All this "you should do x,y and z" churned out by the armchair business moguls (not you) is based on nothing more than narrow vision and a completely simplistic view of corporate finance

Edited by blindswelledrat on Thursday 17th June 14:05