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Why Referrals Are Killing Your Recruitment Business

Words every recruitment consultant loves to hear - the sound of folding money!

“No problem – this month we owe you 800 quid – I’ll drop it off at lunch.”
Words every recruitment consultant loves to hear – the sound of folding money! It’s the calling card of the umbrella / limited company crowd, it happens every day in UK recruitment businesses… And it’s destroying them. It’s a well-worn track, let’s be honest. Umbrella and limited company sales rely heavily (I’d venture solely) on this tactic. It’s not big and it’s not clever – and here’s why it’s killing your business…

The bribery act
New consultants might not be aware of it, but managers and directors need to be. If careful controls aren’t in place, you’re under the spotlight of this – described as the toughest anti-corruption law in the world. And in this setting, vouchers = cash.

Candidate care… Or candidate con?
I’ve been in the industry nearly a decade. When I was a lad (aside from living in shoebox in middle of road and walking 10 miles in the snow to work), £20 was the going rate for a referral. These days I’m hearing of up to £200. That money only comes from one place – your candidates, via the umbrella fee, back into the pocket of a consultant. It’s been an arms race, with the umbrellas outbidding each other to win the business. At the same time we’ve seen the fee go in one direction. Up. How would the candidate feel if they knew?

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Risky business
Put yourselves in the shoes of an umbrella company for a moment (uncomfortable, I’m sure. But it gets worse)… Say you charge £20 per week, and after the 3rd week you’ll pay the recruiter £100. You pay your BDM £50 (plus their basic). That’s before you pay your rent, wages, software and your standard fixed costs. So this model relies on vast numbers of candidates. I’ve had industry experts advise me – pay the consultants! It’s the only way! Sure, you pay a lot of your turnover out, but as you scale you can make a profit… One day… The reality is that there’s so little margin in this model for the umbrella company that a lot of them just don’t make money. In the high referral model, you have to ask yourself… Is this supplier making enough money for themselves to stay in business? And what happens when your supplier can’t make themselves enough money to run? Is your payroll safe? An umbrella going bust has huge implications for a recruitment business.

But what’s the harm? My consultants want to make money!
You’re right, consultants want to make money, and a good one should be good at doing so! But they need to be making money for your recruitment business. So, put yourselves in the shoes of your consultants now… Nearing month end, my temp billing is OK, but not great, and it’s looking like I won’t hit target. Bummer. Commission is down this month. What’s the path of least resistance to top up my pay here?

So… Do you want that consultant to be motivated to hit the phones and make some placements? Or do you want them to squeeze some more referral cash out of an umbrella provider? The choice is clear. To build a successful business, you need your consultants working for that business, not working for themselves.

Ok then, I get it – but how do we change that culture?
If losing that revenue stream is unacceptable to you, your staff or your business model, then put some simple controls in place. Make sure there’s a formal arrangement, a contract and invoices. Once that money comes into your business you can use it as you see fit. Some of the most successful commercial partnerships I’ve set up work around end of month / top billers parties, or candidate appreciation events, where your candidates get treated to a night out. Both of these approaches foster such great buy-in from consultants and candidates alike – and they’re buying into your business. In any case, there’s a clear arrangement, with targets and a budget to be used. There are a number of ways it can work, but letting your consultants pocket the cash on the side demotivates consultants from their true purpose, punishes candidates, and will kill the growth and credibility of your brand.

"No problem - this month we owe you 800 quid - I'll drop it off at lunch." Words every recruitment consultant loves to hear - the sound of folding money! It's the calling card of the umbrella / limited company crowd, it happens every day in UK recruitment businesses... And it's destroying them. It's a well-worn track, let's be honest. Umbrella and limited company sales rely heavily (I'd venture solely) on this tactic. It's not big and it's not clever - and here's why it's killing your business... The bribery act New consultants might not be aware of it, but…

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