One of the leaders in the recruitment-software field, Bullhorn, recently released its 2014 Staffing and Recruiting Trends Report. This “compendium of useful statistics designed to help recruiting professionals determine where they stand in relation to their peers” presents data obtained from a survey of 1,337 recruiters.
For the most part, this year’s report didn’t include much that surprised me. Paying attention to industry trends is one of my top priorities, and I try to keep a close ear to the ground on these matters. Watching the trends and following the research of industry experts—and then putting that information in the context of my own experience—enables me to forecast future developments in the staffing field (both in the short term and in the long term) and advise my clients.
Even though most of the data in this report lined up with my expectations, one statistic did stand out to me:
48% of upper-midsize respondents get 70% or more of their revenue from their largest client.
In other words, nearly half of the upper-midsize staffing companies (i.e., those with twenty-six to seventy-four internal employees) surveyed put most of their eggs in one basket.
You’ve probably heard of the Pareto Principle, which states that 80% of outcomes are derived from 20% of causes. In the business world, the Pareto Principle is also known as the 80-20 rule: “80% of your income comes from 20% of your clients.” This observation has been proven time and again in many fields (and even in nature) since the Italian economist Vilfredo Pareto came up with it in 1906.
This survey, however reveals a skewed version of the Pareto Principle. Instead of a usually healthy 80-20 distribution, many staffing companies have a 70-1 distribution. I don’t know about you, but I certainly wouldn’t be able to sleep at night if I knew that 70% of Mamu Media’s revenue came from just one single client!
After reading this report, I found my thoughts turning back to my years in the staffing industry. Although the company I worked for certainly had some big clients, the largest one accounted for no more than 25% of the organization’s annual revenue. Like many companies, we had numbers that aligned with the Pareto Principle—and we worked hard to keep them that way. We spent a lot of time focused on keeping the 80% of our clients that accounted for only 20% of our revenue.
Why did we go to all that effort? Because we knew that diversification of our business portfolio offered a competitive advantage in the event of an economic downturn. Lo and behold, when the market crashed in 2008 we lost one of our largest clients but had such a diverse client base that we weathered the storm and actually thrived during the recession. We built that diverse client base by paying attention to our smaller-scale clients and actively courting our infrequent or dormant clients.
When I consult with new clients about Mamu Media, I suggest that they use our services to target three groups of sales contacts:
1. Current clients. These are a company’s main contacts and opportunities it may have in other departments.
2. Top prospects. These are the top twenty-five organizations in a company’s market. They’re considered prospects in this case because the company wants their business but so far hasn’t been able to get a foot in the door with them.
3. Dormant accounts. These are the organizations a company has done business with in the last two years but is not currently working with. Those organizations’ needs may be infrequent or seasonal, or they may have decided to take their business to one of the company’s competitors.
When I worked in staffing, we did a detailed analysis of these dormant accounts and realized that they each averaged only about $17K in annual revenue for my organization. At first glance, that doesn’t look like much. But we had a lot of those dormant accounts, and when I looked at them as a group, I was amazed by what I saw: together, they accounted for a whopping 15% of my company’s total annual revenue!
From that experience, I learned how important it is not to neglect small or dormant clients. When I meet with clients today and share this story with them, they quickly see the value of courting those clients.
Opting to spend roughly $50 per year to automate some marketing to decision makers at dormant clients is clearly a no-brainer decision. For very little investment of time and money, companies that reach out to small and dormant clients not only maintain a healthy, diverse client base, but also have the potential to reap big rewards.