Recruitment is an industry where an individual consultant can generate a very high margin for a company, but how much of that goes into an agency’s back pocket?

In this article, we’ll give you an insight into the P&L of a single consultant, what you generate for the company yourself at different billing levels and in different models.

Let’s take a senior recruitment consultant in a boutique with a good commission scheme who is relatively settled 3 quarters into their new role, earning a base of SGD $5,000 per month, performing at the higher end billing 5x their base salary.

This is someone who is most likely above their sales target, as a sales target can typically be set anywhere between 3.5 – 5x base salary.

The commission scheme in the example is based on a threshold of 2.5x quarterly base salary at 30%. The calculation: threshold = 2.5x 15k (base salary) = threshold of 37.5k. Billings of 75k – threshold of 37.5k = 37.5k which is commissionable. 37.5k * 30% = 11.25k.

Quarter 3

Very profitable, almost too good to be true hey? That’s because it is! Let’s drill down into this.

The P&L above gives you the numbers for a senior consultant performing well, most likely on the verge of promotion. However, you must consider how long it took for the consultant to become profitable.

Let’s go back 2 quarters to the consultant’s first quarter and look at a run up of 2 months to get their first deal signed.

Quarter 1

Where is the revenue? It’s not on the P&L because the candidate only signed the deal in month 2, has a 1 month notice and requires an EP, so the invoice can’t be raised until month 4.

That means the same consultant has run at a loss of -$30,386 for the first quarter of their employment.

Let’s look at the second quarter for the consultant.

Quarter 2

The consultant has generated 50k in their first 6 months, which is a common minimum target amongst most agencies. Looking at the gross profit of the consultant over their first 6 months (-$30,386 for Q1, and $21,014 for Q2), they’re running at a loss of SGD $9,372.

As you can see from the P&L over each quarter, the profit really only starts to kick in for Q3 and that’s only if the consultant is on target.

Over the three quarters, the consultant has generated SGD $23,480.

Breaking down each line on the P&L

Net profit and tax

As a disclaimer, this example is focussed on gross profit and not net profit. It does not include corporate tax. If the agency is operating in profit, you can deduct another ~17% (this is the standard flat corporate tax rate in Singapore, but the figure will change depending on your jurisdiction).

Where is all that profit going?

It’s true, high performing recruiters are very profitable for an agency. As you’ve seen, there is a ramp up period before becoming profitable, but why do they not earn more commission if the profit in a good quarter is so high?

Preparing for a bad quarter

This is one quarter of profit, but the recruiter is still relatively new to the business in quarter 3 and may not have a profitable quarter 4. It can take a year or two to get to a level where billings which are consistently strong every quarter. That profit is there to support the consultant during a bad quarter.

Non-billing functions

The P&L above is based on a boutique. They do have non-billing costs such as equipment, visa fees, accountancy etc. If you’re working for a global agency, they will have much higher costs to support consultants that reduce the profit per consultant. Some examples of these costs are non-billing support, such as office managers, marketing managers, learning & development, non-billing managers, senior leadership and so on.

The more investment in non-billing functions, the higher the cost per consultant. Larger firms with a strong platform can enable you to bill more, and they can counteract their higher costs for non-billing functions by reducing earnings on commission schemes.

Underperformers

The P&L is based on one single consultant who is performing well. In reality, there will be other recruiters in the business not performing as well, running at a loss. The company needs the profit to invest in supporting others in the business.

The typical split between strong performers, average performers and underperformers is a third each. The boutiques will have a higher percentage of consultants performing well because they tend to hire more experienced recruiters, whereas the global players will have a lower percentage performing well because they need to train consultants.

Building cash reserves

During times of uncertainty in the market, major events can disrupt business as usual and take a hit on profit.

The best example of this was Covid-19. For a period of roughly 3 – 6 months, hiring nearly came to a standstill and agencies had to eat into their cash reserves to grind through.

Another example could be the economic outlook in 2023, the shift in market will affect the billing of consultants and a company must be prepared with cash reserves to deal with that.

Growth

Last but not least, growth! Unless it’s a lifestyle business, the agency can use the profit to invest back into the business to hire new consultants, launch new desks or even offices.

Disclaimer

The P&L above is purely illustrative and does not include every cost a recruitment agency incurs on one consultant. The jurisdiction in which an agency is registered to will also have an effect on costs when it comes to net profit, such as tax, pension funds and so on

I am by no means an accountant and my knowledge only goes as far as running management accounts for a small business!

Do you want to learn more about recruitment entrepreneurship?

As the Co-Founder of Vocay, I have overseen the P&L of a small business and I love blogging about entrepreneurship, especially in the field of recruitment. My business partner, Roger Smart, built Charterhouse Partnership from zero to 180 recruiters across 5 offices and he also writes articles about his entrepreneurial experiences.

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I also specialise in recruiting recruiters for agencies in Singapore, so please feel free to connect with me on LinkedIn for a chat.