Module 1: INTRODUCTION
’ • • • • • • •
Turnover is Vanity, Profit is Sanity, but Cash is Reality. Cash is driven by Profits…. Imagine you’re a quoted plc. Are you delivering good/expected profitability? Inefficient performance and waste both sap profits. • How much Profit do you squander?
• • • •
Measurement of success Generates cash Increases value Needs to be a vital Strategic mindset • So build it into your culture!
• Current scenario measurements: Perm: Average Placement Salary (APS) Perm: Average Invoice Value (AIV) Perm: Average Fee Percentage Temp: Average Margin Percentage Gross Profit Total Staff Cost Total Costs Net Profit
• Current AIV £3,000 on APS of £20,000 • Average Fee Percentage therefore 15% • Lift this by 1% to 16% -
How? Increase fees? Why not? ToB for £20k? Price Pressure…
• • • • • • • •
Are your prices at, above or below the norm? How do you know? Is that where you Strategically want to be? Price v. Value Differentiation considerably enhances Value The Washing-Up Liquid Analogy 17.5% instead of 20% is a drop of….? “What would I have to do to get 12.5% off your prices?”
M4(P1) Placement Analysis highlighted your current level of discounting • Who can discount? • Why do they discount? • Build an “Authorisation Ladder” • My First Rule of Negotiation: NEVER give a concession… • TRADE it!
• • • • • • • •
Volume business (both T & P) – quantify! New business (e.g. Temp on current Perm) Exclusivity (Define it!) Improved Timescales and Methodologies Reduced UFG terms Full, signed SLA Others? “Don’t ask, don’t get!”
• Any concession given is CONDITIONAL on settlement to Terms • Build it into the Invoice format - see M4(P1) • Does your Placement Analysis include the Settlement date (see point 8)? • All this will probably have been conducted by telephone or face to face • ALWAYS confirm in writing
• • •
•
Any invoicing at other than normal terms should have been confirmed in writing. Is it? Due diligence will uncover omissions…. No Commission should be payable on discounted invoices without a copy of the confirmatory letter being attached. The letter should always address the following 8 points.
1. 2. 3. 4. 5. 6. 7.
8.
Why has the discount been given? Exactly what is the discount, shown with maximum impact. Does it apply to a specific instance, or is it ongoing? State if it is “not to be taken as a precedent for any future business.” If ongoing, always identify a review date or finite time limit. What is the position regarding Rebates / Guarantees? Confirm that the discount is essentially conditional on signing the agreement and settling to terms. Clearly state that, if these conditions are not met, a further invoice will be raised to bring the charge back to the standard terms and thus remove the discount. ‘In all other respects, our normal terms of business apply.’
Current AIV £3,000 on APS of £20,000 Average Fee Percentage therefore 15% Lift this by 1% to 16% How? Increase fees? ToB for £20k?
ACTION! Restrict discounting, contain negotiation Put the above steps in place as soon as possible Allow for increased Commission
• Currently 200 placements at £3,000 = £600k • 1% of (200 X £20,000 APS) = £40,000 • Less extra Commission of £4,800 (estimate!)
• Net Profit increase of £35,200
• Current Margin £400,000 at 22.86% on £1.75m • Lift Margin by 1 percentage point to 23.86% How? Restrict discounting, contain negotiation Put the above steps in place as soon as possible
Increase Charge rates by 1% to £1,767,500 Reduce Payroll Cost by 0.3% to £1,345,775
• • • • •
How much training is given on this? How much initiative is allowed? How good are they at it? Have you analysed it like the Placements? Draw up a list of possible “Trades” to lower the Pay Rate – some examples • Ditto for increasing the Charge Rate – some examples • Thus, there’s scope for widening the Margin (+ 10p) • And often increasing the hours - examples.
• Increase Charge rates by 1% to £1,767,500 • Reduce Payroll Cost by 0.3% to £1,345,774 • Margin up from £400,000 (22.86%) to £421,726 (23.86%) • Margin up by £21,726, • Less extra Commission of £2,607 (estimate!)
• Net Profit increase of £19,119
1. 2. 3. 4. 5. 6. 7. 8.
Differentiation! Increase your prices! Added value services Take control of Negotiations Temp - justify higher charge and/or lower pay rates? Scope for higher Contract Fees Find your lost Perm invoices! Review your Commission system – is it rewarding sales or profit? 9. Reduce Fee earners’ admin. 10. Reduce the time spent in meetings!
How? Current costs are £880,000 So 1% is £8,800 Exclude Staff Costs, and so this has to be achieved from “Other Costs” of £380,000 ….this only requires savings of just over 2.3%! Is that not possible?
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Adopt the “Survival” mentality Differentiate Revenue Inflating from Revenue Deflating costs Every cost must be up for review for elimination YOU sign every cheque for a couple of months Cancel SO’s & DD’s – reinstate as justified Analyse what you’re getting for what you spend Review all suppliers’ Terms and Conditions “Don’t ask, don’t get” – look for a 25% reduction! The cost of Time and Processes – focus on Outcomes You become the Bad Guy – but the message is that you’re out to stop waste, not to save money.
Extra Perm Fees Extra Temp Margin Minimum Cost savings**
40,000 21,726 8,800 70,526 Less extra Commission (7,407) INCREASE IN PROFIT £ 63,119 …or an increase of OVER 50%!
As we have just increased Staff Costs by £7,407, Why not recover that and reduce by 1%?
How? Current costs are £880,000 So 1% is £8,800 Plus £7,407 makes £16,207 To be achieved from “Other Costs” of £380,000 ….this would require savings of just over 4%! If your survival depended on it….
Extra Perm Fees Extra Temp Margin Higher Cost savings at >4%
40,000 21,726 16,207 77,933 Less extra Commission (7,407) INCREASE IN PROFIT £ 70,526 … an increase of nearly 59%!
• All these are not “flipping a switch” changes • It will take time and perseverance, but will pay big dividends • Follow the normal Template and be realistic about the time required to achieve each of the improvements (e.g. it may take 6 months to have a fully documented set of Discount Clients with letters), but keep up the pressure and measure as you go.
Set out your processes for the following: • What do you do to recruit your own staff? • Where do you get them from? • What is the Selection Process? • And what measurements are in place to track your performance in this area?
Turnover is Vanity, Profit is Sanity, but Cash is Reality. Cash is driven by Profits…. Imagine you’re a quoted plc. Are you delivering good/expected profitability? Inefficient performance and waste both sap profits. • How much Profit do you squander?
• • • •
Measurement of success Generates cash Increases value Needs to be a vital Strategic mindset • So build it into your culture!
• Current scenario measurements: Perm: Average Placement Salary (APS) Perm: Average Invoice Value (AIV) Perm: Average Fee Percentage Temp: Average Margin Percentage Gross Profit Total Staff Cost Total Costs Net Profit
• Current AIV £3,000 on APS of £20,000 • Average Fee Percentage therefore 15% • Lift this by 1% to 16% -
How? Increase fees? Why not? ToB for £20k? Price Pressure…
• • • • • • • •
Are your prices at, above or below the norm? How do you know? Is that where you Strategically want to be? Price v. Value Differentiation considerably enhances Value The Washing-Up Liquid Analogy 17.5% instead of 20% is a drop of….? “What would I have to do to get 12.5% off your prices?”
M4(P1) Placement Analysis highlighted your current level of discounting • Who can discount? • Why do they discount? • Build an “Authorisation Ladder” • My First Rule of Negotiation: NEVER give a concession… • TRADE it!
• • • • • • • •
Volume business (both T & P) – quantify! New business (e.g. Temp on current Perm) Exclusivity (Define it!) Improved Timescales and Methodologies Reduced UFG terms Full, signed SLA Others? “Don’t ask, don’t get!”
• Any concession given is CONDITIONAL on settlement to Terms • Build it into the Invoice format - see M4(P1) • Does your Placement Analysis include the Settlement date (see point 8)? • All this will probably have been conducted by telephone or face to face • ALWAYS confirm in writing
• • •
•
Any invoicing at other than normal terms should have been confirmed in writing. Is it? Due diligence will uncover omissions…. No Commission should be payable on discounted invoices without a copy of the confirmatory letter being attached. The letter should always address the following 8 points.
1. 2. 3. 4. 5. 6. 7.
8.
Why has the discount been given? Exactly what is the discount, shown with maximum impact. Does it apply to a specific instance, or is it ongoing? State if it is “not to be taken as a precedent for any future business.” If ongoing, always identify a review date or finite time limit. What is the position regarding Rebates / Guarantees? Confirm that the discount is essentially conditional on signing the agreement and settling to terms. Clearly state that, if these conditions are not met, a further invoice will be raised to bring the charge back to the standard terms and thus remove the discount. ‘In all other respects, our normal terms of business apply.’
Current AIV £3,000 on APS of £20,000 Average Fee Percentage therefore 15% Lift this by 1% to 16% How? Increase fees? ToB for £20k?
ACTION! Restrict discounting, contain negotiation Put the above steps in place as soon as possible Allow for increased Commission
• Currently 200 placements at £3,000 = £600k • 1% of (200 X £20,000 APS) = £40,000 • Less extra Commission of £4,800 (estimate!)
• Net Profit increase of £35,200
• Current Margin £400,000 at 22.86% on £1.75m • Lift Margin by 1 percentage point to 23.86% How? Restrict discounting, contain negotiation Put the above steps in place as soon as possible
Increase Charge rates by 1% to £1,767,500 Reduce Payroll Cost by 0.3% to £1,345,775
• • • • •
How much training is given on this? How much initiative is allowed? How good are they at it? Have you analysed it like the Placements? Draw up a list of possible “Trades” to lower the Pay Rate – some examples • Ditto for increasing the Charge Rate – some examples • Thus, there’s scope for widening the Margin (+ 10p) • And often increasing the hours - examples.
• Increase Charge rates by 1% to £1,767,500 • Reduce Payroll Cost by 0.3% to £1,345,774 • Margin up from £400,000 (22.86%) to £421,726 (23.86%) • Margin up by £21,726, • Less extra Commission of £2,607 (estimate!)
• Net Profit increase of £19,119
1. 2. 3. 4. 5. 6. 7. 8.
Differentiation! Increase your prices! Added value services Take control of Negotiations Temp - justify higher charge and/or lower pay rates? Scope for higher Contract Fees Find your lost Perm invoices! Review your Commission system – is it rewarding sales or profit? 9. Reduce Fee earners’ admin. 10. Reduce the time spent in meetings!
How? Current costs are £880,000 So 1% is £8,800 Exclude Staff Costs, and so this has to be achieved from “Other Costs” of £380,000 ….this only requires savings of just over 2.3%! Is that not possible?
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Adopt the “Survival” mentality Differentiate Revenue Inflating from Revenue Deflating costs Every cost must be up for review for elimination YOU sign every cheque for a couple of months Cancel SO’s & DD’s – reinstate as justified Analyse what you’re getting for what you spend Review all suppliers’ Terms and Conditions “Don’t ask, don’t get” – look for a 25% reduction! The cost of Time and Processes – focus on Outcomes You become the Bad Guy – but the message is that you’re out to stop waste, not to save money.
Extra Perm Fees Extra Temp Margin Minimum Cost savings**
40,000 21,726 8,800 70,526 Less extra Commission (7,407) INCREASE IN PROFIT £ 63,119 …or an increase of OVER 50%!
As we have just increased Staff Costs by £7,407, Why not recover that and reduce by 1%?
How? Current costs are £880,000 So 1% is £8,800 Plus £7,407 makes £16,207 To be achieved from “Other Costs” of £380,000 ….this would require savings of just over 4%! If your survival depended on it….
Extra Perm Fees Extra Temp Margin Higher Cost savings at >4%
40,000 21,726 16,207 77,933 Less extra Commission (7,407) INCREASE IN PROFIT £ 70,526 … an increase of nearly 59%!
• All these are not “flipping a switch” changes • It will take time and perseverance, but will pay big dividends • Follow the normal Template and be realistic about the time required to achieve each of the improvements (e.g. it may take 6 months to have a fully documented set of Discount Clients with letters), but keep up the pressure and measure as you go.
Set out your processes for the following: • What do you do to recruit your own staff? • Where do you get them from? • What is the Selection Process? • And what measurements are in place to track your performance in this area?
