Given the macro-economic data on unemployment, it is not surprising that employment in the recruitment industry is shrinking, according to BDO Stoy Hayward’s review of the latest data outputs from Recruitment Industry Benchmarking (RIB). Unemployment has risen to 2.26m in the first quarter of the year, the highest since November 1996, and figures from the Office for National Statistics, covering the period until April, show the jobless rate rose to 7.2%. At the same time, RIB members are reporting that the number of employees in April was nearly 25% down from the same time last year.

Since November 2008, year-on year comparisons have shown that the number of employees has fallen considerably as recruiters adjust their cost base downwards by reducing the number of people they employ. The recruiters’ cost base is simple to analyse with more than two-thirds of costs usually associated with people, followed by premises costs and advertising spend as the two next largest items. To make any reductions in cost, even the most sentimental recruiters have to face up to the fact that they can no longer support the headcount they once could.

The total number of staff employed in the recruitment industry during the year to 31 March 2008 was around 109,000; these falls currently being experienced suggest there are more than 20,000 fewer people in the industry overall.

How long demand for recruitment services will continue to fall or stay at the current subdued level is difficult to predict. Manpower’s Employment Outlook Survey gives some forward thoughts that unfortunately are not encouraging. According to their findings, UK employers forecast downbeat hiring intentions for the third quarter of 2009. Although 6% of employers expect to increase headcount, 10% anticipate a decrease and 81% predict no change.

Christopher Clark, corporate finance partner at BDO Stoy Hayward, said: “Recruiters are experiencing significant pressure to reduce costs to urvive. While being a largely commissiondriven industry means that costs reduce in line with placements being made and hence revenue, even base salaries cannot be met, with average falls in revenue of over 30% in comparison to last year. With a bleak outlook for the rest of the year, owners are having to reduce costs in the only way possible.”

The dilemma recruiters face is getting the balance right between fee earners and the support staff required to deliver what revenue is being generated. April 2009 highlights a current imbalance as businesses start to operate on minimum requirements of support staff. Unless agreements can be reached for part-time working, reducing admin costs further may be impractical without fundamentally changing working practices.

Clark added: “Where recruiters have outsourced certain functions to specialist suppliers they are more capable of adapting to changes in demand. While this may appear more expensive and require a change to methodologies, outsourcing can provide significant flexibility and importantly lower cost. Now might be the time to consider such options as they will provide a cost benefit and with workflows lower, easier to implement than when you are operating at capacity.”

Unsurprisingly, the net effect f all these factors is that recruiters have not made a positive return on turnover for the whole of 2009.

Crawfurd Walker, director at RIB, said: “In the present market it is crucial that management make decisions that will significantly impact on the profitability and value of their company based on current market information. Simply using internal, historic, management accounts is not enough when implementing key strategic decisions.”

Recruitment Industry Benchmarking (RIB) provides its members with bespoke monthly comparisons of their performance on key industry measurements.