In the recruitment industry there has always been a split between permanent placements and contract placements, with some agencies having both permanent and contract desks and others considering themselves as ‘permanent only’ agencies. This may be due to the industry that they recruit into or the client’s requirements that they are working with. However, we have spoken to a number of ‘permanent only’ agencies over the years who have not considered contract recruitment due to the apparent perception that the administration and funding would be a burden, and ultimately that to make a permanent placement is much simpler.
With some recruitment agencies not willing to consider making contract placements, they could be losing out on opportunities to help their clients and generate additional revenue streams. Also, with some clients wanting a temp-to-perm arrangement where the candidate works for 6-12 weeks before they become permanent, this can mean that a permanent placement fee is also lost in the process.
Below are 5 reasons why permanent agencies should consider making contract placements:-
- PROFITS GENERATED ON A DAILY BASIS
The main difference between permanent and contract placements is that a permanent placement will generate an instant profit figure whilst a contract placement will generate daily profit for every day the contractor is on site. The average contract placement will renew at least twice with a client, meaning that you could end up generating more profits than if you had placed the candidate on a permanent basis. Furthermore, if you build your contractor book to a reasonable level you can generate a regular income even when you are not working, instead of being reliant on when you next permanent deal will drop.
- INCREASE COMPANY TURNOVER
As the invoices for contract placements include the pay rate to the candidate and the agency profit, this will increase your agency turnover compared to permanent placements which only show the agency fee. This increase in turnover will help to increase your company value and help attract the attention of potential suitors in the future.
- FUNDING EASILY AVAILABLE
Often the main drawback of making contract placements is that the candidate needs to be paid on 7-10 day terms, whereas the client will pay the invoice on a 30-45 day terms leaving a funding gap. However, there are many solutions available to recruitment agencies making contract placements such as pay-and-bill providers and invoice finance companies who are happy to provide finance to fund the payment to the contractor. Even new start up agencies can easily get this kind of funding as it is seen as minimal risk funding because there will always be a signed timesheet that corroborates with the invoice.
- INCREASE IN COMPANY VALUE
One of the main advantages of contract recruitment is the effect it has on the value of the recruitment agency. A permanent agency will often have a lower multiple than a contract recruitment agency due to the buyer being able to capitalise on the profits of continued placements after the sale of the agency. If the agency has contract placements with long contract lengths or is signed up to preferred supplier agreements with its clients this can further increase the value. Permanent agencies still have a value but demonstrating a continued revenue stream after the sale can be hard to justify, which is why the multiples are lower.
- OPEN UP FURTHER ONTRACT AND PERMANENT PLACEMENTS
Being able to fill contract placements for your clients can reduce the risk of you losing a client. If your agency can only fill permanent roles then your clients may use a rival agency to fill the contract roles and your relationship could be diminished when the next permanent placement is made. Also, as a good contract recruiter will often keep in touch with the client and candidate on a regular basis during the duration of a contract placement, it could be that further recruitment opportunities may become available during those conversations.
TBOS has a wealth of experience in helping recruitment agencies with the administration and funding of contractor placements. We have supported many new start up agencies, either through setting up their own invoice finance arrangements and then administering the full back office and accounts of their agency using our TBOS Complete model, or provided a pay-as-the-contractor works facility where we provide the administration and funding on individual placement using our TBOS Freedom model. Both of these solutions have ensured that the agency can fulfil the client’s requirements and often increase the agencies turnover and profitability.
For more information on how TBOS can help administer and fund your contract placements, please contact our office.