During the month of November, a total of 533,000 jobs were slashed from companies’ payrolls nationwide. In December, it was even worse, with nearly 600,000 people losing their jobs. Clearly, this recession is different from the past few that the country has experienced. That’s a fact borne out by news reports that members of the Federal Reserve Board anticipate this recession could be longer and deeper than officials believed it would be just a few weeks before.
These are truly difficult times for some recruiters, especially for those whose business models consist solely of direct-hire placements. When times are good, direct-hire recruiters can count on big placement checks arriving in the mailbox on a rather consistent basis. That type of economic climate no longer exists. More than two million people lost their jobs in 2008, and by all indications, another two million could do the same this year.
Survival mode brings consistent cash flow
For many recruiters, these are eye-opening numbers, and in more ways than one. Once upon a time, a recruiter’s biggest problem was finding enough qualified candidates to fill all of the job orders on their desk. That problem has been replaced with an even larger dilemma—direct-hire job orders are drying up, almost overnight. In fact, some recruiters have been reporting that their clients are cancelling job orders and even rescinding offers of full-time employment that they’ve already made. Talk about watching a fee evaporate before your eyes.
So… what is survival mode? For those recruiters who’ve made contracting part of their business model, the answer is simple: secure as many contracting job orders as possible. Then fill those job orders with the candidates who have made a career choice of contract work or fill the job orders with some of the candidates who’ve lost their jobs. Many of the two million people who lost their jobs in 2008 would jump at the opportunity to work on a contract assignment.
That might be easy for somebody who’s been making contract placements for years, but what if you’ve never seriously thought about contracting? The first step is a shift in mindset, specifically one away from direct-hire only and toward one that includes both direct-hire and contracting. For example, recruiters who’ve enjoyed a great deal of success in the direct-hire world have trained themselves to continually think of the next big perm fee, and why wouldn’t they? After all, experience has taught them that such fees exist, somewhere in the future. But in today’s economy, that might not be true… at least for the immediate—and possibly—the foreseeable future.
Depending upon what industry and/or niche you’ve been working (for example, Automotive or Real Estate), direct-hire job orders could be on the verge of disappearing altogether. By contrast, clients are cancelling job orders and even rescinding offers of full-time employment that they’ve already made.
So if that’s the case, or if you fear that could be the case relatively quickly, the time to change your mindset is now. It’s time to focus on using contracting to build consistent revenue that compounds in relation to the number of placements that you’re able to make. Sure, the money you earn from placing candidates on a contract basis comes in smaller, steadier amounts as opposed to a big, lump sum, but considering the vast amount of uncertainty that currently exists in the direct-hire realm, there’s a huge advantage associated with contract staffing money. . .
You know when that money is going to arrive.
When you’re running a business, cash flow is king. Without it (or without sufficient credit, which is also tougher to secure these days), any firm or business is bound to find that the walls are closing in. However, it’s not just the fact that the money arrives on a consistent basis that makes contract placements so attractive. You can earn a substantial amount of money through contracting, and you don’t have to make 100 placements in order to do so. The following example illustrates that.
Let’s start with the fact that some recruiters set a goal of having between eight and 12 contractors out on assignment at any given time. These recruiters also typically have a goal of earning $10 per hour on each of those contractors. Given those parameters, how much will these recruiters earn over the course of a year if they meet their goals? The answer is as follows:
12 contractors x $10/hour x 40 hours/week = $4,800/week
Or, put another way,
12 contractors x $10/hour x 173 hours/month = $20,760/month
Projected over an entire year:
$20,760/month x 12 months =
We’re talking about a quarter of a million dollars in contracting money that the firm will make during a 12-month period. Plus, you get the added benefit of consistent cash flow. This money will come in week after week, month after month. This will give you the additional sense of security that you’ll be able to pay your monthly bills and not fret over the next big direct-hire check.
A mindset change is mandatory
The biggest challenge you’re facing right now is a mindset change. The compounding “cash” value of each contract placement adds up quickly. In the above example, the $20,760 per month of consistent monthly income could be even better than a sporadic $20K perm fee. Even if you’re only earning $7 or $8 for each hour your contractor works, that quickly adds up when you have several contractors working at once. You even get paid when the contractor works overtime, and usually you get paid more.
Al Katz of First Search, Inc., recently hosted a meeting in his office to help other recruiters understand the advantages of contract staffing. Al and his team were direct-hire recruiters, but quickly learned the advantages of contract staffing during the last recession. At one point, they had over 90 contractors working at the same time, and First Search was earning $750 for each hour worked by this group of contractors every week. Their mindset change from direct-hire to contract staffing earned First Search an average of $30,000 a week for 52 weeks. That’s over $1.5 million in contract income over the course of a year!
Survive… and thrive
If the above cash flow example doesn’t convince you that there’s money in contracting, here are a few more from the last recession that illustrate you can survive and thrive during this recession. In 2002, the following occurred:
1. A California recruiting team earned $478,197 by placing 53 contractors throughout the United States.
2. A technical recruiter earned $174,217 by focusing on one Fortune 100 client.
3. A one-man show in Pennsylvania earned $112,316 by offering his client temp-to-perm conversions for technical personnel.
4. An IT recruiter in Massachusetts earned $111,467 by placing contractors at all levels—from help desk staff to Senior Systems Programmers.
Any recruiter can change
You can change your mindset to think about smaller increments of cash that have a great compounding formula when you add contractors. You can also change your business model to include contract staffing by letting your clients know you can work contract job orders. When you outsource the back-office responsibilities to a company like FoxHire, you’ll be amazed at how easy contract staffing can be.