I have been asked this question a lot lately. If you are wondering at what point to grow your team, check out this video blog.
Do I build then hire- Or hire than build
Hi there, Belinda Kerr here from recruitment garage. I’ve had quite a few people ask me lately when I’m growing my business, should I grow the business first and then plug in consultants or do I plug the consultants in first and then grow the business around them? My view on this is really clear. Unless you have endless pots of money, build, then hire. And here’s why. Full-time employees are by far your number one cost and until you have a significant period of increasing income each month, hold off on the hiring. Don’t make the mistake of thinking that hiring a new employee will boost your cash flow, they will cost you more than they make in the short term. In fact, in the short to mid-term, you need to allow roughly double his salary to have them sit at a desk in the business to start with before they even make you one cent or one penny, and then you need to factor in the time, it’ll take you to set them up. And that’ll likely decrease your billings as well if you’re a producer for a certain amount of time.
So for example, a new employee starts on a $60,000 base, the cost of a seat is around double that, so around one to 120,000. And then of course, you’ve got any Commission’s on top of that, and also, taking away any hit to your billings that may happen if you’re getting them up and running or if it’s somebody else in the business and they’re in a billing role that will obviously impact their billings. But let’s say in this example, it’s a neat 120,000 cost per annum. So that’s a cost of $30,000 in the first quarter that you’re paying out against, most likely very little or no cashing, not billings, paid invoices for placements that your new hire has made. And in the second quarter, another 30,000 out of your pocket. So we’re now 60,000 down across the business across the six months and all going well, your new consultant is starting to build.
Let me illustrate this in a bit more detail for you in this graph. So we’ve got the blue line here is showing you the employee cost, the green line is showing you received cash so not build this is actually into your bank account because cash flow is what matters not billings, you can build as much as you like, but until the client pays you, there’s not a lot of value for you. So I’ve made some assumptions here, I’ve assumed that the average placement fee is $12,000. We’re looking at a perm example because that’s much easier, it doesn’t really matter it can be 10 margins as well. I’ve assumed that there are no refunds or replacements across this year for this consultant. I’ve assumed that the clients are paying within four weeks. Now if you can get that many placements already. paid in within four weeks, you’re doing really well. So we’ve assumed that there are no debtor issues. I haven’t included commission. And I’m assuming that this consultant actually starts billing from month one.
So in reality, every scenario is going to look a little bit different. And, you know, I haven’t affected in there, whether they’re experienced consultants, they need training, that type of thing. But you can make your own assumptions here to get a more relevant picture for your agency. I’ve assumed there are no hiccups. There’s this person they’re in, they’re on board, they’re running, they haven’t taken any holidays, you know, they could start and then need to move overseas, they can get sick, they can be having your competition come into your market, there can be a slowing economy. But I’ve assumed in this example, nothing goes wrong. So they’re costing you at least $120,000 for the year, and obviously, you’ve got to factor in some commission on top of that at some point. So, over that 12 months, they’ve cost you 120,000 dollars, or, you know, if it’s pounding and changes it, change it down to pounds. And you’ve received into your bank account $132,000. So, in a perfect scenario, you’re only $12,000 in front. So if you factor into this equation that the average tenure of a recruitment consultant is anywhere around two to three years, depending on what industry you’re in, maybe more, maybe less. The investment that you’re putting in upfront, and as I said before, the mid-term is quite substantial, if they’re not staying very long in your agency. And also, I don’t know what the steps are now. But if you hire three consultants, it’s very unlikely that all three of those will be still in your business in two to three years’ time. So you need to factor that in as well.
Standing out to great consultants and trainees building a great business system that delivers you a predictable and scalable revenue is not only great for you, but it’s also a great way to interest prospective recruiters or prospective consultants. So if potential consultants can see just how well your business is set up and how it’s doing, and it’s crystal clear to them as to how they can hit their targets with you, they will be far more likely to join you than your competitors. So once you have a predictable and scalable business model in place, it’s a much easier process to plugin for one of a better term, the right people, and more importantly, keep them when your competitors are tapping them on the shoulder every month with new opportunities. And if they’re good consultants, they will absolutely be getting hit up all the time. So if you add consultants too early, as you’re trying to as you’re still trying to establish your business, they’re far more vulnerable to being approached by your competitors.
Confidence in cash flow, unlikely words to put together I guess, but what I’m referring to here is if you hire too soon, you may well put unwelcome pressure on yourself. And that is no good for anybody in the business. Start to ask yourself, what would happen if there’s a downturn? What would happen if the consultant leaves? Can the business bear that pressure? Then? How much does that leave you out of pocket? You know, are you vulnerable? Is there enough business coming in? Is the business strong enough to support another person essentially? So ask yourself these three questions. What if they left? What can you offer over your competitors to not just hire people to not just get people on board, but to keep them in your agency? And also a really important thing, if people aren’t performing? When do you part ways it’s very easy to give people chances and more chances? If people are doing really well. It’s obvious that you want to keep them. If people are doing really badly. It’s obvious to them and to you that they’re in there. Wrong place. But there’s this middle ground where you kind of live on hope that people will do a little bit better than they are at the moment. But while they’re not they’re costing you business. So they need to decide where their parameters are around what people need to be billing, to keep their seat in your business. So if they aren’t performing as well as you’d hoped, what support Are you going to give them? And where are you going to draw the line and let them go if you need to?
And that very short video gives you my views on when I believe that you should start thinking about hiring people. This might come across a little bit negative, it’s not meant to it’s just meant to open your eyes as to what the real costs are of hiring somebody in your business and really, when is the right time, just so that you don’t jump in too soon. And you can make a valid argument for hiring a consultant and give them and you the very best chance of it working out for everybody. Thanks for Watching this really short video and I trust there was some value in there for you