Revenue Intelligence for recruitment agencies

Revenue Intelligence for recruitment agencies is the continuous comparison of your ATS or CRM, your timesheets, your payroll and your invoicing, so you can see which placements were not invoiced or were invoiced too low, which hours were worked but not billed, and where your margin is quietly shrinking because pay rises and rates do not. It does not replace your ATS or your accounts. It reads them together, because most leaks in recruitment sit precisely between those systems.

Recruitment is a sector with two very different business models under one roof: permanent recruitment with a one-off fee per placement, and contracting, staffing or interim with a continuing margin per hour worked. Each leaks in its own way. If you want to apply Revenue Intelligence in recruitment, you need to understand both.

Two business models

Permanent recruitment

You find a candidate, the client hires them, and you invoice a fee. That fee is usually a percentage of gross annual salary, sometimes a fixed amount. There are variants: contingency, where you are only paid on placement, retained, where part is paid upfront or in instalments, and exclusive assignments with adjusted terms. There is almost always a guarantee attached: if the candidate leaves within a set period, you find a replacement free of charge or refund part of the fee.

Revenue per placement is high and the number of transactions low. The leak sits in the fee calculation, in placements that are never recorded as placements, and in the guarantee.

Contracting, staffing and interim

You make a candidate or professional available to the client and invoice per hour worked. You pay the person yourself, as an employee or as a self-employed contractor, and earn the difference between the rate to the client and the cost of the person.

Revenue is continuous and the number of transactions high: timesheets every week or month, for every professional. The leak sits in hours that are not invoiced, in allowances that are not recharged, and in margin that shrinks when costs rise without the rate moving with them.

Where does permanent recruitment leak?

Fees calculated on the wrong salary

Your terms might say, for example, that the fee is calculated on gross annual salary including holiday pay, a thirteenth month and fixed allowances. In practice the client passes on the monthly salary and the recruiter multiplies it by twelve. The difference is a few thousand euros per placement. It is rarely noticed, because the client has no reason to mention it and the recruiter never sees the full remuneration package.

Check: for every placement, ask for the full offer or the employment contract, and calculate the fee under your own terms. Compare that with what was invoiced.

Placements that never become placements

A candidate you introduced is turned down at first. Three months later the client hires them anyway, for a different role or through a different route. Or: a candidate you introduced to client A ends up at client B, a sister company of A. Depending on your terms, you are entitled to a fee. Whether you notice depends on chance: a LinkedIn update, a remark from the candidate.

Check: keep track, per client, of which candidates you introduced, and compare that periodically with public information about new hires at that client. This is manual work, but each hit produces a full fee.

Guarantees applied too generously

The candidate leaves within the guarantee period. The client asks for a replacement or a refund. Your terms have exceptions: leaving because of a reorganisation, a change in the role, or dismissal for reasons unrelated to the candidate may not be covered by the guarantee. And the guarantee may depend on timely payment of the original fee. In practice the guarantee is often granted without being tested against the terms, out of goodwill or because nobody takes out the terms.

Retained instalments that are not invoiced

On a retained assignment, part of the fee is invoiced upfront, part at shortlist and part on placement. If the interim instalments are not set up in the system as invoicing moments, everything is only invoiced on placement. Or, if the assignment is stopped, never.

Where do contracting and staffing leak?

Hours that are not invoiced

Timesheets are submitted, approved by the client, processed in payroll and invoiced. Between those steps things can go wrong: a timesheet that was not approved and therefore not invoiced, but was paid. A correction after the fact that was processed in payroll but not in invoicing. Hours from an extra shift passed on by email that never reached the portal.

The check is simple in design: per period and per professional, hours paid against hours invoiced. Every difference where you pay more than you invoice is direct leakage. How this works between systems in general is covered in CRM-to-billing reconciliation explained.

Allowances and overtime

Overtime, unsocial hours allowances, travel expenses, weekend shifts. If they are paid to the professional, they should also be invoiced under the agreements with the client, usually with a mark-up. If they are paid but not recharged, or recharged without the mark-up, your margin per hour shrinks.

Pay that rises, rates that stay the same

This is the largest and most structural leak in contracting and staffing. The professional's pay rises: through an annual increase, through an increase under a collective agreement, or, for agency workers, because in many jurisdictions their pay has to keep pace with comparable employees at the hirer. The rate to the client does not rise with it, because nobody adjusted it or because the agreement with the client has no clause for passing on cost increases.

The result is a margin that shrinks a little every year without anyone having decided it. The pattern is the same as with other contracts without indexation; see revenue leakage from missed price indexation. What is specific to recruitment is that the cost increase happens automatically, through payroll, and the revenue increase does not.

Extensions at the old rate

An assignment runs for six months and is extended. The extension is entered in the system on the same terms, even if the professional now has more experience, earns more, or your standard rates have gone up. The extension was the moment to review the rate, and that moment has passed.

Conversion without a fee

The client wants to take the contracted professional on permanently. Many agreements include a conversion fee, often reducing the longer the assignment has run. If the professional simply disappears from your system and starts at the client, without anyone applying the conversion clause, you leave that fee on the table.

These and other patterns are worked out in revenue leakage in recruitment agencies.

Which systems do you put side by side?

In many recruitment agencies the ATS and payroll are the two best-maintained systems: the first because recruiters work in it, the second because people want to be paid. Invoicing is produced in between, often half by hand. That is where the risk sits.

Worked example

Worked example: suppose an agency with EUR 10 million in revenue, of which EUR 2 million comes from permanent recruitment and EUR 8 million from contracting. The agency has an average of 120 professionals on assignment.

Permanent recruitment. There are 100 placements a year with an average fee of EUR 20,000.

• On a quarter of the placements the fee was calculated without holiday pay, which the terms say should be included. Holiday pay is typically 8 percent, so the fee is 8 percent too low: 25 x EUR 1,600 = EUR 40,000.
• Over the past year, two candidates were hired after all by a client they had previously been introduced to, without a fee being invoiced: EUR 40,000.

Contracting. 120 professionals, an average of 1,600 billable hours a year, an average rate of EUR 65.

• For a third of the professionals, pay rose by 3 percent this year without the rate being adjusted. Suppose employment costs are around 70 percent of the rate: the margin per hour then shrinks by 3 percent of EUR 45.50, around EUR 1.37. For 40 professionals x 1,600 hours that is over EUR 87,000.
• 0.5 percent of hours paid are not invoiced because of differences between timesheets, payroll and invoicing: 0.5 percent of EUR 8 million is EUR 40,000.

Together that is over EUR 200,000, around 2 percent of revenue. The amounts are constructed. What they show is that the leaks in the two business models can be of a similar order, while they arise in completely different ways.

What does Revenue Intelligence do that your ATS does not?

An ATS is built to manage candidates and assignments. It knows who was introduced, who was placed and what was agreed. It does not know whether invoicing was correct afterwards, and it does not compare with payroll. An accounting package such as Exact, AFAS, Xero or NetSuite processes invoices, but does not know which invoices should have existed.

Revenue Intelligence works differently from reporting. It does not ask how much you invoiced this quarter, but what differences there are between what the systems together say you should have invoiced and what you did invoice. The result is a list: this professional, this period, this difference, this amount. What Revenue Intelligence is in general is covered in what is Revenue Intelligence.

What are the signs that your agency is leaking?

You do not need to run an analysis to have a suspicion. These signs are common in recruitment agencies:

1. Gross margin in contracting falls while the number of professionals stays the same. If revenue is stable and margin shrinks, costs are rising faster than rates.
2. Finance corrects invoices by hand every month. Corrections mean that the automatic route from timesheet to invoice does not close. Where things are corrected, things are also sometimes missed.
3. Recruiters do not know exactly how the fee is calculated. If the terms are not known to recruiters, the fee is calculated on whatever the client passes on.
4. Guarantee claims are granted by the account manager, with nobody else involved. Then the relationship matters more than the terms, and that is not always a deliberate choice.
5. Nobody can quickly say which assignments are below minimum margin. Then there are probably more than you think.

Why is the sector so prone to it?

Recruitment runs on speed and relationships. Recruiters and account managers are rewarded for placements and revenue, not for the completeness of invoices. That makes sense, because without placements there is nothing to invoice. But it means that control over what happens afterwards sits largely with a small back office that works with whatever the front end supplies.

On top of that, payroll in contracting and staffing is tightly run, because mistakes in pay are felt immediately by people and by regulators. Invoicing has no such pressure. Nobody complains about an invoice that is too low. The result is an asymmetry: costs are processed in full and on time, revenue with delays and gaps.

How do you tackle it?

Step 1: start with the hours

If you run contracting or staffing, start with the comparison between hours paid and hours invoiced. It is the most direct check, the data already exists and every difference is money. Take three months, per professional, per week.

Step 2: go through the rates

List all current assignments with the current rate, the current pay and the date of the last rate adjustment. Calculate the margin per hour. Sort by margin. The bottom of that list is where you start.

Step 3: check ten placements

Take the last ten permanent placements. For each, ask for the full remuneration package and recalculate the fee under your terms. Also look at guarantee claims from the past year: were they tested against the terms?

Step 4: put introductions next to hires

Take the candidates you introduced over the past year who were not placed. At the clients with the most introductions, check whether any of those candidates now work there. This is the least scalable check, but the return per hit is high.

Step 5: make it continuous

The first four steps give you a baseline. After that you want new differences to show up immediately, not a year later. That requires the systems to be compared continuously. How to do that for a CRM and an invoicing system in general is covered in how do you check CRM against billing. The principle for contracting is the same, with payroll as the third source.

Checklist

1. Are hours paid and hours invoiced compared per professional per period?
2. With every pay rise for a contracted professional, is it assessed whether the rate can go up?
3. Do your contracting agreements include a clause for passing on pay increases?
4. Is the rate reviewed at every extension?
5. Is the permanent recruitment fee calculated on the full annual salary as your terms define it?
6. Are guarantee claims tested against the terms before they are granted?
7. Are retained instalments invoiced when they fall due?
8. Is the conversion clause applied when a client hires a professional permanently?
9. Do you track which candidates were introduced to which client, and check that periodically?
10. Do you know your margin per hour per professional, and which professionals are below your minimum?

If you want to go through this once with an outsider, without connecting systems, you can do that through the Revenue Audit. It looks at eight areas of your revenue and puts every finding in euros.

Frequently asked questions

Where does a recruitment agency leak the most?

At agencies with a lot of contracting, usually in the margin per hour: pay increases that are not passed on, and hours that are not invoiced. At agencies that mainly do permanent recruitment, in the fee calculation and in placements that are never recorded as placements.

Is a recruitment CRM or ATS enough to see leakage?

No. The ATS knows what was agreed and who was placed. The leakage arises at the handover to timesheets, payroll and invoicing. For that you need to put those systems next to the ATS.

Can I still invoice a fee if a candidate is hired later?

That depends on your terms of business and what you agreed with the client. Many terms include a clause about candidates who are hired within a set period after introduction. Have the exact application assessed by someone who knows your terms, and check the rules in your jurisdiction.

How often should I review contracting rates?

At every pay rise for the professional, at every extension and at least once a year. Most important is that the decision is made actively. A rate that stays the same because nobody looked is different from a rate that stays the same because you decided so.

Can a small agency do anything with this?

Yes. An agency with twenty contracted professionals can do the hours check and the margin list in a spreadsheet. Automation only becomes worthwhile when the number of professionals, clients and placements is so large that monthly manual work is no longer kept up.