Break even… or leave.

It will be a short post today… for 2 reasons.

  1. I’m flying solo in the office this week… Luke’s enjoying some time back in the UK & honeymooning in Crete, whilst Jen is over in Perth… showing off her bubba belly to friends & family (am I allowed to say that?)
  2. I wrote a blog last night that I thought was pretty good! It made sense and it was all ready to go with it this morning… then… when I re-read it I realised that it was almost the same as the one Luke posted last week… he’s always telling me I should take more notice of him… point taken.

Soooo… I thought I would look at a topic I have touched on in the past. (Not the same way that I almost touched on Luke’s blog, but we have covered it in some way nonetheless).

breakeven2I met a candidate last week… let’s call him Dudley ‘Booger’ Dawson… Booger had been an IT Recruitment Consultant working a hybrid desk, in the contingent – mainly PSA – space for the past 4.5 years. All at the same employer. On paper he’s looking pretty damn good.

‘So, tell me Booger…’ I asked. ‘What are your billings like?’

Booger smiled smugly and said, ‘I billed $47k last quarter and have been averaging about $15k months.’

‘OK…’ I replied. ‘And what salary are you looking for in your next role?’

Cue Booger. I knew what he was about to say before he said it… I had heard it a million times… Don’t get me wrong… I hoped he’d be different… hoped.

‘I’m currently on a package of $80k… One of the reasons I’m leaving is I haven’t had a pay increase in almost 2 years, so I’d want at least a $5k increase for my next role… oh… and under the commission structure at my current employer I’m not currently earning any commission…’

‘No shit Sherlock…’ I whispered… clearly not quietly enough.

‘What?’ Booger asked…

Let’s leave the interview there… I certainly wrapped it up pretty quickly.

Listen Consultants… I need you to understand something. Your bosses are in business to make a profit. They will (in most cases) gladly share that profit with you in the form of commissions, but you have to break even first!

I’ll make it easy for you & let’s use Booger as an example…

breakeven1In business there is a very simple formula that most companies look for in revenue producing employees… You need to bill 3x your salary package to be profitable… How does this work?

Well Booger is on a package of $80k per annum. That includes his base salary, tax & on costs (in Australia this includes superannuation).

Great… you think. That means once Booger has billed $6,666.66 in a month ($80k / 12 months) he has broken even… wrong.

What about the cost of you being in the business?

  • Insurance
  • Rent
  • Computer
  • Business taxes
  • Support Staff
  • Utilities
  • Phone
  • Advertising
  • Marketing
  • Etc. Etc. Etc.

Usually this adds up to around the same as an individual’s salary package.

You with me? I see you nodding your heads… you’re now 1 step ahead and saying… ‘That means once Booger has billed $13,333.33 per month ($80k x 2 / 12 months) he has broken even… wrong.

Businesses need funds to strategically grow. Launch new offerings, buy new technology, invest in consulting… and the owner/s need to be paid as well.

This equates to… you guessed it… about the same as an individual’s salary.

So… Booger needs to bill $20k per month ($80k x 3 / 12 months) to break even. Get it?

Our friend Booger was billing $15k per month, meaning he was costing his current employer $60k a year in losses. If you owned a business would you carry an employee like that?

It’s simple guys… and girls. Work out what your monthly break even point is… and don’t forget the simple formula…

Your Annual Salary Package x 3… then divided by 12 (months).

If you are billing below that… do something about it.

Craig Watson

14 thoughts on “Break even… or leave.”

  1. I understand, and completely agree with the direct cost (i.e doubling the salary) but tripling the salary is debatable. The figures used would be easy for the employer to justify but impossible to prove. Half the “costs” you mentioned e.g. investments in technology are what could be best described as fluid figures that can be made up to show how the tripling of the pay was calculated. Bottom line is, if these amounts aren’t spent then the excess goes to the employer in addition to what has already been included in the calculation. I’m not saying I have a problem with this but would be nice if the whole thing was more transparent

    1. Hi Steve,
      Your point is valid to an extent, but don’t forget it is this ‘investments in technology’ etc, that suffers and not spent when revenue driving staff don’t produce.
      I admit this post is a very simplistic approach, but Consultants in the recruitment arena need to realise that break even is not just covering their salary… or even covering salary + cost of seat… it’s more than that…
      Cheers
      Craig

  2. I’m new to this recruitment malarky and even I can see the logic in this. If you’re not earning anything over your base salary in commission, then you’re either being paid really well (for good reason I’m sure) or you’re not doing your job properly surely? Or am I missing something here?
    If you’re working for a fair employer, then is it not right to think that your base salary and commission should work out somewhere about the same, plus a perk in my pay packet (commission). i.e. let’s say I’m on the $80k that Booger is. I’m hitting my targets so therefore I should ideally be looking at $90-$100k if all is right in the world. I’m paying my way for the company and also adding a little extra for my hard work ability.
    I have to say that I am extremely conscious of what I’m billing and if I’m not billing according to my KPI’s then I expect not to get any perks, pay rises, extras etc.

  3. SURELY there isn’t any Consultants out there that don’t realise you need to bill 2-3 times your salary to remotely be an asset.

  4. Its is also widely believed that hammering the phones doing cold business development is the way forward. Recruitment is changing. Its about time the perceived norms caught up …. recruitment is full of dinosaurs ….

    1. Hi Rob,
      I understand that recruitment is changing – hammering the phones doesn’t work… but unfortunately if you can’t make money for your employer you don’t deserve to have a job… simple.
      You can’t keep cutting costs or you won’t have the tools to be successful – this includes training, technology & marketing. You also have to pay for electricity, water, rent, insurance, payroll tax etc. etc. A lot of businesses also have support staff, Admin, Reception, Accounts, Resourcers etc. And yes… the billing consultants have to cover the cost of them. Finally, you really don’t expect Directors not to pay themselves do you?
      So no matter whether recruitment is full of dinosaurs, dragons or fairies… if you are not covering your salary 3 times you are a liability to your business.

      1. I am not debating that there are costs to cover. I am debating there are too many costs to cover (in one or two companies I have worked for they are borderline comical) So the fundamentals around 3x salary are a number based in accepted “norms” … I run a business where my consultants can make me a profit and cover all my costs at levels below 3x base. Why is 3x base the accepted norm … I suspect like you said earlier … because it just is …

        I have also seen the accepted profit levels of many businesses coupled with what their consultants are earning.

        The fact is it is better for the long term health of your recruitment business for you to have stability rather than ridiculous industry standard churn levels. These large corporate recruiters are picking up grads and spitting them out effectively ruining their careers before they get started. Happy recruiters being paid well dont leave jobs …. gone are the days old and gone are the days of accepted norms.

        Perhaps the recruitment “directors” need to get back to the grass roots rather than peddle the same old jargon that doesnt work anymore ….

  5. Rob I would love to work for you, You have a very enterprising approach, I have always elected to go for a reasonable Base and a High Commission element, After 40 + years in Recruitment I have seen it all. Now Retired I would love to work 30 Hours per week to share my vast knowledge and Portfolio Expertise with some young Guns, and not necessarily as a Recruiter.

  6. I have to say I am probably blessed in where i work then, as I am made fully aware of company overheads etc and I have no issue with the pay structure, targets or commissions. It’s all transparent and as a slightly more mature entrant to recruitment (46), the economics make perfect and reasonable sense.
    I am also blessed in the knowledge that my Director has a fluid approach to recruitment techniques. I am not expected to pound the phones pointlessly, I am expected to take my time and build solid and dare I say meaningful relationships with both clients and candidates. I am treated like the adult I am and told that whatever works for me (and produces results obviously, as well as respecting the long term relationships the company has) is fine by the boss.

  7. KPI driven recruitment based on numbers of interviews to referrals to client interviews to placements and 3x your salary to make commission are, I believe, becoming an increasingly out dated model. It doesn’t allow for innovative, authentic and flexible approaches to delivering the best recruitment solutions for clients and candidates.
    It creates a competitive and at times distructive environment, leading to high churn of consultants and a level of decision making driven by self interest.
    We have moved to a team culture where all candidates, clients and jobs are shared and the talents and resources of the team are collaboratively brought together drawing on individual strengths to get results. We are in discussion to move to a profit sharing model. The business is consistently making a profit, we have had the same team of consultants for 7 years and a new team member for 2 years. When you go on holiday you are really on holiday because the team just slides in and takes over your role and you still get a share of the profit. Not that hard really!!!

  8. I have been running a recruitment firm for 10 years and for me a back end resource should bill atleast 8 – 10 times his / her salary. I am also surprised that there are search firms who payout 33 % to 50 % of billing to consultants. But then 50 % of USD 1 mil is also a good profit margin for a services company where employee is the asset. So its all about whether you are in bulk hiring (low invoice value) or search business (high invoice value). For search 3 times your salary is a good billing. For bulk hirings, 6 – 8 times is what an organization should look for.

Leave a Reply

Your email address will not be published. Required fields are marked *