Recruitment companies will never lift profit if they continue to tolerate average-performing consultants, according to well-known recruitment executive and Aquent ceo Greg Savage.

Speaking at the RCSA annual conference in Sydney, Savage said that by retaining marginal consultants, recruitment companies will suffer slow rates of revenue and profit growth. He warned that a complacent attitude towards poor performers would stunt any improvement in productivity.

Instead, managers should adopt a zero tolerance policy of mediocre performers and concentrate their coaching, training and motivating efforts on the "good" performers and make them into "great" consultants.

He said while recruitment consultants were a recruitment company's most valuable asset, they could also be its greatest liability, and asked the audience, "what does it cost to have a mediocre consultant at a high-cost desk?".

$100,000 to keep a perm consultant, not including salary

According to Savage, the average cost of keeping a permanent consultant (not including salary) was $100,000.

In calculating the average cost of a "perm seat", Savage based the $100k figure on the allocated pro-rata costs of the business (such as admin, marketing, advertising, IT spend, manager's salary but not including the consultant's salary) divided by the total number of consultants.

"You will be horrified to find that it costs about $75,000 to $100,000 to keep them [a perm recruiter] in a seat," he said.

Savage argued that the cost of keeping a poor performer is the same as retaining a top-billing consultant, and so "this is where your potential productivity is hiding".

He also stressed the role of a manager in lifting the productivity of a recruitment team. He said high productivity within a team depended on the leader's ability to be an "effective fee-earning manager" and so "each manager needs a personal fee production goal".

For temp recruiters, he said each consultant should be producing gross profit seven times their salary, while perm recruiters should earn four times their base salary.

Savage said that any recruitment company should aim to achieve a gross profit figure at least three times the amount of each dollar spent per consultant.

EBIT margin is clearest indication of productivity

By comparing the operating margins (EBIT as a percentage of total revenue) of ASX-listed recruitment companies, Savage pointed out that, on average, the industry produces a rate of between 4 and 6%.

In 1999, when Savage was heading up Recruitment Solutions, it had an operating margin of 9.6%, which he said was the highest margin at that time and higher than any ASX-listed recruitment company today.

He said that Aquent currently had an ebit margin of 10.1% in 2004, while Hays across its Australian and NZ operations, produced a margin of 14%.

Volume recruiting drags down industry rates

Savage told the conference that recruitment companies should not allow themselves to be seduced by volume recruitment contracts.

"Do not sacrifice margin on the altar of volume", he said, because this only sets a precedent for lower fees in the future.

Savage said while such deals allowed larger companies to gain significant market share, it was detrimental to the industry as a whole if recruitment companies continued to allow clients to lower margins.