You’ve probably noticed, if you’ve followed our latest blogs, that we are very interested in the growth of our clients. We are in a position to advise clients from start-ups to established firms, based on our track record since 1992. This blog has to do with growth metrics, and what is most important to measure.
Based on our history, and our valued relationships with clients, we caution that one metric that unfortunately staffing agency owners and managers sometimes overly rely on is sales revenue. Of course sales revenue is important. However, the reason this can be a “false” lead is that, depending on the nature of your business, temporary sales can fluctuate all over the place, given the nature of the work and other issues, such as federal and state unemployment, health costs and insurance costs, and so on.
And this is before you even consider getting into a VMS or MSP situation.
That’s why at Madison we advise our clients to focus on a more true measure: Gross margin percentage and gross profit dollars each month, which has the added benefit of helping you track both temporary and direct hire (so it applies to the major aspects of your business).
Gross profit equals sales revenue minus the direct costs associated with those sales. These direct costs include temporary employee wages, FICA, workers comp, federal unemployment, state unemployment, health and other insurance costs as well as those MSP/VMS fees.
Gross margin is the percentage of gross profit divided by sales revenue. It’s a great metric to chart your success. And you can go on from there. For example, we encourage staffing firms to look at industry benchmarks, especially by joining respected industry stalwarts like the American Staffing Association or Staffing Industry Analysts. You can figure out how your numbers rank on a regional, global, or niche level, or how you stack up against your competitors… there are many ways to slice and dice and use the numbers to improve your growth.
At Madison, we offer business intelligence tools that can help you track these metrics. For example, you can track trends on sales gross profit, gross margin, MU percentage and headcounts, with adjustable periods and comparisons with drop-downs by month, quarter or even yearly.
EBITDA is also a very important metric to track.
This unwieldy acronym stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s valuable because it leads you to make sound decisions.
EBITDA is sometimes also referred to as operating income. Simply put, this is the amount of income or loss you have after you subtract your operating expenses from your gross profit. Operating expenses are costs related to the day-to-day operations of your business. They include everything from internal employee salaries, marketing, recruitment advertising, rent, utilities, computer and office expenses, license fees, legal fees, insurance, property taxes, travel and vehicle expenses.
You can use it to analyze and compare profitability between companies and industries and this will make you leaner and more flexible without the added burden of the effects of financing and accounting decisions.
This makes you ready to jump into a new market, or segment, and more importantly, see if you’re prepared to grow. (It’s also how many companies value other companies, if you are in the market to sell and not grow, or are looking to acquire, which is, of course, another avenue to growth).
The good news is that technology is there to help you break down these metrics, which among the main ones mentioned above can include market penetration, retention, referrals, and many other growth indicators.
But it’s not just enough to have metrics in place. If you aren’t a numbers person, you can hopefully add a savvy member to your staff, or use an outside consultant. The important take-away here is that information is only as good as how you use it.
Are you looking for strategies that can help your staffing company grow?
At Madison, we can help you with your growth, and show you demos and share advice. We’re huge believers in the staffing industry and we’re here to help you succeed. We offer more support to help staffing firms succeed than ANYONE else. Fully outsourced back office services. 100% payroll funding. World-class business intelligence. And exceptional staffing technology. Madison Resources gives you everything you need to drive sales, improve recruiting and deliver exceptional service.