Driving Revenue Growth and Profitability

Why do some staffing companies succeed and grow, and others don’t? Tom Nunn, president of Tom Nunn Consulting, believes that at least part of the answer is data and discipline. In his consulting practice, he’s helped scores of staffing companies use data to become more profitable and successful.

Growing companies measure, track, and understand their business data, and use it to make better decisions. If you want your business to grow, what data should you be using?

What growing staffing companies do well

Successful companies understand that you can’t manage what you don’t measure. They measure the right things. They track key performance measures – both leading and then lagging measures. They set clear expectations for their salespeople and recruiters, and they hold them accountable for hitting those quotas. They are quick to praise good work and to also offer help and they don’t shy away from making difficult decisions when that doesn’t help.

Less successful companies operate more by ‘gut feel.’ It’s not uncommon in staffing for founders to be highly entrepreneurial salespeople. This is a very important trait but often they are often not as capable at understanding and using data. His advice is simple. “Get good at understanding the most important data that drives performance in your company, at understanding the story that data is telling you and taking the appropriate actions.”

Measure and understand

Data-driven decision-making empowers businesses to make smarter choices that align with their goals and improve overall performance. It helps companies navigate complexity, uncertainty, and competition by relying on factual insights rather than assumptions.

Key Performance Metrics

There are 24 key performance metrics (KPMs) that Nunn recommends that every staffing firm should measure and track over time. These include some relatively obvious ones:

• New job orders
• Candidate submittals
• Starts and stops
• Total revenue
• Average gross margin

While most staffing firms track these data points, some are less commonly measured:

• Submittal to interview ratio
• Interview to start ratio
• Job orders per sales executive
• Submittals per recruiter
• Producer to non-producer ratio

For all these KPMs, Nunn recommends tracking each in ‘real time,’ and, also measuring the trailing twelve-month (TTM) average. Doing this gives the executive management team a clearer picture of how the business is growing.

Leading vs. lagging indicators

Some of the data points mentioned above are what Nunn describes as lagging indicators. They’re relevant and important, but by the time they’re measured, they’re in the rear-view mirror.

These include starts, stops, revenue, gross margin, and others.

Leading indicators, on the other hand, are ‘closest to the money.’ They are key actions that lead to placement, and therefore revenue. Nunn highlights three that are most important to track:

• New job orders
• Submittals to client
• Interviews at client

Additionally, there are five other leading indicators that – while somewhat less critical than the top three – are important markers for business growth:

• Existing customer contacts (visits, calls, emails)
• Prospect contacts (visits, calls, emails)
• Internal submittals (from recruiters to salespeople)
• Candidate connects
• Candidates added to database

JSIP analysis

Job orders, submittals, interviews, and placements – JSIP metrics – are the lifeblood of a staffing business. Most staffing companies track these in their normal course of business. For businesses aspiring to grow, Nunn recommends taking a deeper dive with this data.

Analyzing these KPMs at a more granular level – by staff person, client, and area of business, allows you to better understand performance at that level. Doing so, you can assess:

• Quality of customer
• Quality of sales performance and job orders
• Quality of recruiting at the team or individual level
• Cost of doing business and corresponding profitability

Understanding these allows you to align your resources and compensation plans more effectively.

Production over tenure

In staffing, producers need ramp-up time to rise to the level of full performance. Nunn recommends formalizing this learning and performance curve. When new hires – and existing staff – are clear about performance expectations, they can be held accountable for meeting those expectations.

To accomplish this, Nunn uses a Production Over Tenure Report, which lays out the expected weekly performance spread for three tiers of performance – Minimum, Average and Star, over the initial 24 months of employment.

While the numbers may differ based on your business mix geography, and other factors – particularly to arrive at the billing headcount (BHC) indicator – Nunn shared an example of this report to illustrate the concept.

• Star Performance
  A producer who generates about $900 in their first month, rises to over $10,000 in their twelfth month, and over $20,000 after two years would qualify as a ‘star performer,’ in Nunn’s assessment.
• Average Performance
  A producer at the average level may not generate any revenue in their first week. By one year, however, their weekly spread should be around $7000. After two full years, an average performer can be expected to produce a weekly spread of $12,000,
• Minimum Performance
  The minimum performance expectation for Nunn is a weekly spread of about $3500 at twelve months, and about $8000 at 24 months. When a producer isn’t performing at this minimum level of expectation, management must be able and willing to have difficult conversations about the employee’s future with the business.

Nunn recommends making these expectations clear when each new employee joins the organization. He also says that the most successful firms make this data public to all employees on an ongoing basis. A monthly report showing the current level of performance recognizes and rewards star performers. It also signals to those producing results below minimum expectations that they need to improve, or perhaps move on.

Financial health: the rule of thirds

At the overall business level, Nunn notes that the finances of high-performing staffing companies generally follow the “Rule of Thirds”:

• ⅓ of gross margin $$ covers producer (commissioned salespeople and recruiters) costs
• ⅓ of gross margin $$ covers general and administrative (G&A) expenses
• ⅓ of gross margin $$ falls to operating profit

Isolating your producer costs is critical to manage their effectiveness, and the overall financial health of your business. These costs include salary, commissions and bonuses, taxes, benefits, and travel and other costs.

If your data shows that the ‘thirds’ are out of balance, what does that tell you?

If your producer costs are higher than ⅓, it may indicate that your compensation plan is too generous. More commonly, however, it indicates that the business is keeping underperforming producers on staff for too long. A temporary increase, however, can simply show that new producers are still in the ramp-up stage.

If your producer costs are lower than ⅓, it could suggest that an unusually large number of your producers are star performers. More often, though, it indicates that your compensation plan is less competitive than it could be, increasing employee retention risks.

If your G&A expenses account for over ⅓, it may indicate that your non-producer payroll and other costs are too high, or that you’re not realizing an adequate return on your investments. On the other hand, if your G&A expenses are less than ⅓, it may show that you should be investing more aggressively in growing the business.

Making steady progress

If you want your staffing business to grow, this kind of data can be the key. Nunn has one closing caution: taking on too much at once can result in a lack of focus, undermining your business growth objectives. Instead, choose a manageable number of data points. “A good approach,” Nunn says, “is to isolate two or three things you want to focus on now, gather the right help, communicate, get it done then move on to more.”

Nunn covered these concepts – and much more – in a recent TechServe webinar. TechServe members, if you missed the live presentation, you’ll want to check out the recording. Nunn shared the tables and spreadsheets he uses to help his client companies grow, and there was a lively Q&A session with attendees at the end.  Not a member yet? Join us for insights like these and much more. Learn more about member benefits here and join us today.