Direct Hire can be an important source of profit for a staffing company, this is particularly true in a recovering economy which has come out of a recession and can be unusually large particularly for a staffing company that traditionally generates most of its sales in temp. Overall DH is expected to be up 15% in 2021, and retained firms such as Heidrick & Struggles up 74% from the same period last year.
Relying on DH after a recovery in particular, may lead some companies to emphasize the DH portion of their business and even neglect their temp staffing, if only by putting too much of their resources into DH. Direct hire for temp staffing companies is the icing on the cake, like a rich topping one can get addicted to but not something that is sustainable and counted on every year. DH’s volatility impacts regular profit growth which is critical. This can result in deferring investing in more temp staff and weaken the company’s foundation relative to competition. The larger a company is, the more they can increase their profit as fixed costs are spread over a larger sales base. Another analogy is that DH is similar to killing an elephant, whereas temp is similar to harvesting ones crops. Killing an elephant provides lots of food for a while, but after everyone has feasted it may be quite a while until you find another such feast. Temp is similar to harvesting the crops you have planted which provides a reliable and regular source of food, even if you have to collect it a small bushel at a time. We have worked with clients who have moved swiftly into DH and redirected resources away from temp only to find when the DH tide subsides it has left them high and dry and they neglected their temp pipeline which then took quite a while to reestablish.
In addition people good in DH, develop special relationships with clients which can be lost if those people move on, which can be precipitated by an acquisition. This can be a problem in valuing companies when they try to sell their business and buyers recognize the risk they have when they are acquiring human assets which are friable and precarious.
So how should you use your profits generated from DH? One option is to use the profit generated to hire more temp sales reps and recruiters to finance the growth of that business. Another choice is to use that opportunity to move into a new staffing niche or new geographical market you were exploring but didn’t have the capital to do. Then there is the choice to dilute the impact of DH by devoting more resources into temp business development, by penetrating new temp prospects and working to expand your footprint with your current clients. One can also use their new found DH profit to secure a larger line of credit to help finance your temp sales growth and pay down your debt and get your financial ratios in better shape for a higher LOC.
So this is the time to figure out your strategic plan and use your DH as a dividend to make it happen.
