The fall in permanent placements has significantly reduced business profitability, according to BDO Stoy Hayward’s review of the latest data outputs from Recruitment Industry Benchmarking (RIB).

With the margins on temporary placements holding up, the decline in placement volume is having a dramatic effect on the profitability of
recruiters that focus on permanent placements.

Permanent billings fell by 36% between January 2008 and January 2009. This reduction cannot be absorbed within a current cost structure and this is why falls are occurring in monthly profitability to a net loss of 5.2% of sales. A loss of this magnitude is not sustainable and a grass roots review of operations is unavoidable.

The margins currently being earned on temporary billings has shown around a 1% decline over the past 10 months, with part of this being expected due to the changes in employments rights. As volumes were holding up until more recently, these reductions were manageable through making minor alterations to their commission structures and cost bases.

Christopher Clark, corporate finance partner at BDO Stoy Hayward, told Recruiter: “With permanent revenues falling so significantly, there is a
fundamental funding gap monthon- month. Recruiters with a strong balance sheet may choose to continue funding such losses
on the basis that they will have an advantage for a market upturn.”

With unemployment reaching 1.97m between October and December last year, with the latest figure just over the 2m mark, the number of people out of work is at its highest level since 1998. It is not surprising, therefore, that people in jobs are not moving and employers are
holding back on any recruitment plans.

While there will be opportunities to find people for vacancies in industries with skills gaps, the competition to fill these positions has significantly
increased. This is reflected in the number of clients billed by RIB members in the last six months, which has seen reduction of more than 20%.

Clark added: “The effects of the downturn are also affecting the relationship between recruiters and their clients. Recruiters who previously had good relations with clients will find that these are becoming strained. Clients will be courted by numerous players and eventually won’t be
able to resist the urge to try someone new that is able to offer a more competitive rate to find staff.”

Recruiters have limited scope for spending beyond a few discretionary elements. It is not then surprising that headcount has fallen for the last three months. The headcount reduction in January 2009 was over 12% compared with last year. The balance of temporary and permanent billings in an organisation will determine how much recruiters will be affected by the current slowdown. A business with a bias of billings
towards temporary placement will be less affected in the shorter term and therefore the need to reduce costs is not as pronounced. This largely explains why the reduction in staff numbers is lagging behind the much larger reductions in revenues.

Crawfurd Walker, director at RIB, told Recruiter: “A reduction in revenues should be expected in the current economic climate, but
by their proactive management of the situation, recruiters can ensure their reductions are far less than those being experienced by the wider industry.”

Recruitment Industry Benchmarking (RIB) provides its members with bespoke monthly comparisons of their performance on key industry measurements.