How to grow a recruitment agency when more tech hasn't moved GP per recruiter

Recruitment has more technology, data and automation than ever. GP per recruiter has barely moved. Darren Westall sat down with Mike Ames to ask why, and what agency owners should do about it.

Mike has founded and sold two recruitment agencies, the first for £24m in 1998 and the second for £15m. He now works with owners whose businesses aren't giving them the income, free time or wealth they expected. His case for recruitment agency growth is simple: stop measuring size and start measuring what you keep.

The full conversation is in the recording above. Here is what he covered.

Start next year's plan with net profit

Ask an agency owner about next year and you'll usually hear about revenue, a new office or more consultants. Mike thinks all of these are the wrong starting point. The first question is how much net profit (EBIT) the business will make, because that's the number you can spend, reinvest or keep.

Growing by hiring pushes costs up, and profit rarely keeps pace. Mike calls the result a scissor company. Turnover rises, net profit falls, and the gap widens as the business gets bigger.

The alternative is to grow revenue while holding costs steady. Mike says at least 80% of that extra revenue then reaches the bottom line. His targets:

• Permanent recruitment: convert 40 to 60% of fees into net profit

• Contract and temp: around 25% of net fee income

Measure contribution, not just GP

"You can make a shed load of GP and not an ounce of net profit," Mike says. For individual consultants and teams, he uses contribution instead.

Take the GP a consultant brings in, or net fee income on contract. Subtract their direct costs: salary, commission, and licences such as LinkedIn and Paiger. What's left is their contribution. Add every consultant's contribution together, take off overheads, and you have net profit.

Contribution shows what each person returns on what you invest in them. It's also fairer to consultants than a net profit figure, because it leaves out overheads they don't control, such as offices or directors' pay.

Mike cites REC and KPMG research showing the Pareto principle holds in recruitment: around 20% of consultants bring in 80% of revenue. That isn't a verdict on the rest of the team. It's the reason to know what each consultant returns, and to act where the return is low.

Hire at the pace your profit can absorb

Every new hire lowers contribution for a while, because they cost salary and kit before they bring in fees. The mistake, Mike says, is hiring again while profit is still down. Get profit back to where it was, or higher, then hire again.

His rule of thumb is to never grow by more than 10% of your workforce in any three months. Allow three months to get a new consultant to a minimum level of productivity, and use that time to confirm you made the right hire.

He's also sceptical of two common habits:

• Trainee intakes. If perhaps 30% work out, he'd rather another agency carried that cost.

• 360 roles. Few people are excellent at client care, business development, account management and sourcing all at once. Mike prefers small pods where each person does the part they're best at.

Darren pushed back here. Plenty of Paiger customers run 360 desks and do well. Mike's answer was that many of those are larger firms whose consultants have a brand, marketing spend and support behind them. Over a longer period, he says, most 360 agencies swing up and down as key people leave.

That links to the first of Mike's three pillars of a successful agency, the team. It needs to be stable, motivated and productive, with low dependency on any one person. A departure should be an irritation, not a crisis.

Use AI to build more relationships, not to replace them

Darren described how his own business records every call and meeting and syncs it to the CRM, so nothing is lost when someone leaves. Mike sees agencies doing this nowhere near enough.

Recording calls only helps if the calls change, though. Many still sound like phone calls from four years ago: is this job right for you, can I send you some CVs. Mike wants consultants to ask questions that reveal what people care about, so the agency can send them content they actually want.

He uses the PACIFIC model for relationship data:

• Preferences: what they like and dislike

• Aspirations: what they're trying to achieve

• Challenges: the problems they're facing

• Interests: what they enjoy outside work

• Family: their family set-up

• Incidentals: anything else that matters to them

• Circumstantial: what's happening right now, such as a marathon in two weeks

AI can pull this out of call transcripts and surface it before the next conversation. Referring back to something someone told you shows you listened. Mike calls it one of the most powerful things in relationship building.

Where he draws the line is automated outreach. He deletes emails with an obviously AI-written first line. AI should tell you who to talk to and what they care about, and a person should still have the conversation.

His reasoning is commercial. A client who hands vacancies to an agency they've never heard of probably isn't the client you want. If competitors are automating everything, more lunches and meetings could be what sets you apart. Darren agreed: clients and candidates use a recruiter to talk to a person, so automating that part means automating the wrong thing.

What to measure in the next 90 days

Asked what he'd change in the next 90 days, Mike picked delivery. It's what clients pay for, and he says you can't build a great agency on average delivery.

He'd track two things:

1. Efficiency, inside the business. How much effort it takes to make each fee, and how many vacancies convert into fees.

2. What clients think, outside it. This one matters more.

Mike once lost a £3m client while meeting every internal SLA. The hiring managers disliked how his team worked with them. So he recommends asking every client for criticism, and rewarding it, rather than collecting star ratings. Each piece of feedback is a chance to get 1% better.

How to grow a recruitment agency that keeps more of what it bills

More tools won't fix flat GP per recruiter on their own. Plan around net profit, judge consultants on contribution, hire at a pace profit can absorb, and use AI to make more of the relationships only people can build.