STAFFING BUSINESS
ASSESSMENT

KEY TAKEAWAY

To maintain standards and drive continuous improvement, it is crucial to track and evaluate the performance of your staffing business. The most commonly tracked staffing KPIs are fill rate, time to fill and cost per hire. These KPIs relate to the time and cost invested in your recruitment efforts and are critical to day-to-day operations. However, additional KPIs relating to candidate and client sourcing, redeployment, profit margin and customer satisfaction are equally valuable and provide directional insights to ensure that you are optimizing your business performance across all aspects of your operations.

When it comes to KPIs, the best practice is to regularly review a cross-section of actionable metrics that best represent the full scope of your business operations. The natural inclination may be to create KPIs on weaknesses and monitor areas that need improvement. Taking a holistic approach with KPIs relative to both your competitive advantages and weaknesses will help to maximize your strengths.

The idea is not to overwhelm yourself with data but to understand how the areas that have the greatest impact on your success are performing, to either capitalize on opportunities or address any issues quickly and efficiently.

Knowing your competitive advantage and unique selling proposition keeps you focused on your core competencies and helps you to determine which performance metrics will have the greatest impact on your business.

According to Staffing Hub’s State of Staffing Report 2022, 39% of staffing companies compete on unique services within a specific segment, and 14% compete on price of services. Although price is always one of the primary drivers, it is not always sustainable. At what cost are you willing to provide the lowest price? Quality and reliability ultimately build brand value and customer loyalty. Focusing on specific segments can help your company excel in fill rate and minimize turnover. Regardless of which strategy you have adopted, the KPIs you monitor must align with it to ensure that you maintain your competitive advantage.

The staffing industry has been experiencing incredible growth over the last year, with over 20% of firms reporting growth of more than 50%, according to Staffing Hub’s State of Staffing Report 2022.

The SIA Industry Pulse Survey Report from July 2022 shows temporary staffing revenues are up 21% over last year, with the highest growth seen in the travel nurse segment (up 75% y/y). Other high growth segments include IT, up 20% y/y and life sciences, up 19% y/y. The best news? No segment reported a negative year over year change in revenue!

The following table summarizes the 2021/2022 temporary staffing revenue growth by segment:

The financial health of your staffing company impacts every aspect of your business, from recruitment and client management to technology and operations. Regardless of whether you are self-funded or work with a finance partner, you must ensure that there is ample and flexible cash flow to support your business.

According to eCapital staffing industry survey data from 2021, staffing companies rely on a mix of funding sources to finance their business operations, with only 12% getting 100% of their financing from a traditional bank. In comparison, 60% of staffing companies use a payroll funding provider.

The popularity of payroll funding can be attributed to the following benefits:

• Supports rapid growth
  Obtaining additional financing quickly can be challenging. As a self-funded firm, cash flow may not be readily available to cover the costs of taking on a new account or expanding into a new market. Likewise, increasing a line of credit at the bank can be a cumbersome and lengthy process. Payroll funding is the fastest way to free up working capital, allowing companies to take advantage of new opportunities quickly.
• Provides cash flow flexibility
  The amount of working capital available to you is directly related to the amount of your accounts receivable. Payroll funding quickly adapts to your business needs.
• Gives peace of mind
  Making payroll is critical and waiting for clients to pay can put a strain on cash flow. With a payroll funding solution in place, you receive up to 95% of the value of your invoices as they are issued, and the payroll funding company collects the payment on your behalf when it comes due. This can eliminate the worry of having the cash on hand to cover payroll and other expenses.
• Designed for the staffing industry
  Payroll funding is a financial product specific to the staffing industry, and the best payroll funding providers will have a dedicated team of individuals with extensive experience in the industry.

When it comes to the cost of financing, it is important to conduct a cost-benefit analysis. Financing through a payroll funding provider will typically cost more than financing through a traditional bank. What you need to ask yourself is, “Are the additional benefits worth the cost?” Your source of financing can open up opportunities or box you in. Always carefully evaluate your financing options with the goals of your business in mind.

The most challenging recruitment activities for staffing companies are typically finding qualified candidates and getting candidates to respond.

Staffing firms use a variety of sources to find new candidates but have the greatest success from direct sourcing and referrals. Leveraging your existing relationships and networking with industry peers is key. Take advantage of social platforms to stay in regular contact, attend local and regional industry events, and schedule in-person meetings when possible.

Technology can be a significant asset in supplementing your recruitment efforts. Artificial intelligence is improving at an accelerated rate, allowing staffing firms to meaningfully communicate with candidates at all hours, 7 days a week. Flexibility is not only expected but critical in today’s recruitment environment. Candidates expect accessibility and automation. AI can accelerate the recruitment process, especially to free up time in the early stages so recruiters can focus on securing more placements of qualified candidates.

The impact of the COVID-19 pandemic, the Great Resignation, rising interest rates, and supply chain disruption have culminated in an economic landscape that is uncertain and unpredictable. As the debate for what the future holds continues, staffing companies must look at the range of possibilities and be ready to act as necessary.

In the recession of 2008/2009, few, if any, staffing firms were immune to the impact that a loss of 28% of US staffing revenue had on the industry. Companies with a focus on temporary staffing tended to fare better, as they were able to adapt to client’s changing needs and budgets quickly.

In the initial findings report from the SIA North America Staffing Company survey conducted in August 2022, in response to a possible recession staffing companies are primarily focused on lessening the concentration of their client base and increasing emphasis on selling to less recession-sensitive clients and industries. Diversification is key. Have the flexibility to pivot from an under-performing segment to one that is performing, ensure you are working with solid clients, renegotiate payment terms if possible and look for multi-skilled candidates that can fill more than one role if needed.

It is interesting to note that the large majority of staffing companies surveyed are not planning to sell part of all of their business, close branches, reduce their technology investment or cut existing staff in response to a recession.

The staffing industry is rapidly embracing digital transformation. Today, staffing firms invest about 25% of their total budget on technology and software and firms of all sizes expect to invest more in technology this year than they did last year, according to Staffing Hub’s State of Staffing report 2022. An essential aspect of this has been the widespread adoption of software applications to help streamline and automate workflow.

The change in staffing company attitudes in regard to technology has been significant over the past year, with the number of firms that agree technology provides a competitive advantage for their business increasing by over 15% year over year. Firms are also more apt to be early adopters of technology, as being first in market with technology can give a firm a competitive edge.

The most valuable technology by the participants surveyed was an Applicant Tracking System (ATS). ATS systems can not only organize and post job listings but also automatically screen resumes to identify the most qualified candidates and track and schedule interviews. Entering filters and keywords for each available job position makes the automatic screening even more effective. ATS systems can also automate and facilitate efficient electronic communications with candidates.

The most used technology is texting software across all firms, making it almost industry standard. Nearly three-quarters (73%) of candidates prefer text messages to other forms of communication. Texting is the most efficient means of professional and personal communication today. Around 95% of text messages are read and responded to within three minutes, while the average email is opened within 24 hours. Other tech that ranked high in terms of value were time sheet tracking automation, talent matching, automated job board posting on the firm’s website, and mobile apps.

Keep in mind that technology can have its pitfalls. Staffing is a relationship industry reliant on human interaction. Attention to detail and creative thinking is critical for successful and quality driven recruitment. Most staffing firms agree that technology can enhance the efficiency of a recruiter and allow for greater scalability. However, technology should not completely replace the need for the involvement of a human recruiter who ultimately can build the successful relationship with applicants leading to higher quality of staff.

The use of a Vendor Management System (VMS) to manage and procure talent is increasingly the standard when working with larger companies. In the SIA Workforce Solutions Buyer Survey 2022, 81% of respondents currently have a VMS in place, and a further 17% expect to seriously consider a VMS within the next two years (which could result in 98% of firms using a VMS by 2024). In terms of use by segment, use of a VMS is more common in the professional category, including skill sets such as IT and Engineering, with 86% of firms using a VMS for these types of roles. In comparison, 63% of firms use a VMS to procure commercial talent such as Industrial and Office/Clerical.

With regard to a Managed Service Provider (MSP), 62% are using one today, and 15% expect to consider it within the next two years, potentially bringing the total to 77% of larger firms using an MSP by 2024. By segment, MSPs are used for skills sets in the professional category by 67% of firms, and by 42% in the commercial category.

While use of a VMS and MSP is fairly common, satisfaction among users is not very high. When asked whether they would recommend their current VMS or MSP, only 15% would recommend their VMS and 16% would recommend their MSP. In terms of perceived value, talent acquisition was rated the least valuable attribute, which is interesting considering that is a main purpose of using a VMS or MSP.

Although satisfaction with a VMS or MSP may not be particularly high, larger firms are not moving to direct placement. Only 1% of the contingent workers at the firms surveyed were sourced direct. And although 49% of firms are interested in exploring direct sourcing, barriers such as corporate consensus and absence of technology prohibit rollout.

According to the July 2022 US Staffing Industry Pulse Survey Report from the SIA, firms expect their pay and bill rates to increase by an average of 10% year over year. Specifically, per diem nursing pay rates are expected to increase 16%, and office clerical bill rates are expected to increase 11%. Staffing companies that serve the manufacturing industry estimate both pay and bill rates to be up 15%.

When bidding on new contracts or renegotiating existing contracts, it’s critical to have a strong understanding of your labor burden rate and operational costs. The labor burden rate is the indirect cost to keep a business functioning. It includes costs such as:

• Worker’s compensation
• Taxes
• Liability and other insurance required by customers
• Employee training
• Benefits (Health insurance, Sick Pay, Paid time off)

Operating expenses may also be known as Selling, General, and Administrative (SG&A) expenses. Typical operating expenses include:

• Accounting fees
• Advertising and marketing
• Legal fees
• License fees
• Office Supplies
• Maintenance and repairs
• Rent
• Salaries and wages (other than direct labor for production employees)
• Property taxes
• Travel
• Utilities

Evaluate every new contract with these costs in mind and understand how your burden rate and operating expenses will be impacted.

Selling the business is the most common exit strategy for staffing company owners. Some staffing firms are built with this goal in mind, while others sell once the owner or owners are ready to retire. Another exit strategy to consider is an Employee Stock Ownership Plan (ESOP). Although more complex than a standard acquisition, ESOPs can be a great motivator for employees as well as provide tax advantages to the seller.

Maximizing the value of your business is good practice regardless of your plans. Client and employee retention rates are key here, as they represent a staffing company’s biggest assets. Be sure to keep up to date SOW and contract documentation for each of your clients, proactively manage your debtors and creditors to maintain liquidity, and hold a strong cash position with a working capital (cash) fund.

The value of your company will be dependent on various factors, with the state of the economy and staffing industry trends impacting desirability. In today’s landscape, the majority of acquisition targets are within the healthcare and IT staffing segments. 52% of companies looking to acquire staffing firms chose one of these two segments in SIA’s 2022 Update: Companies Looking to Acquire Staffing and Workforce Solutions Firms published in June 2022.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is commonly used to calculate a company’s value, with the multiplier used determined by the economic factors already mentioned. For example:

• EBITDA x Multiplier = Company Value

For the 2021-2022 year, firms participating in the SIA’s North America Staffing Company Survey in August 2022 most often used a 5x multiplier.

Companies with an EBITDA between $1 and $5 million were the most popular acquisition targets at 16% of completed acquisitions. Companies with an EBITDA of more than $50 million were a close second at 15%.