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Staffing firms with less client concentration tend to have higher valuations — there’s less risk of one large client leaving and taking a major chunk of revenue with it. “If you have all your eggs in one basket, things can go wrong on very short notice,” said Jon Osborne, vice president of research and editorial at Staffing Industry Analysts.
But how much revenue does a top client represent at a typical staffing firm?
It depends on a staffing firm’s size and segment, according to new research from Staffing Industry Analysts based on a survey of 649 staffing firms.
When asked what percent of revenue came from their largest client, the median response among staffing firms with less than $10 million in revenue was 20 percent. That compares with a median 10 percent from staffing firms with $101 million to $250 million in revenue.
The same trend held for the five largest clients at staffing firms. The median response among firms with less than $10 million in revenue was that 53 percent of their revenue came from their top five clients, and just half that for firms in the larger size category.
Among segments, information technology staffing firms reported the highest concentrations of clients. The median response among IT staffing firms was that 65 percent of revenue came from their top five clients. In comparison, office/clerical and industrial staffing firms reported only 20 percent of revenue came from their top five clients.
“Staffing firms can use this kind of data to benchmark their company and determine if they are as client diversified as comparable staffing firms,” Osborne said. “Being too client concentrated is one of the most common downfalls of staffing firms so it’s something to be monitored and avoided. Benchmarking is a good first step.”
Staffing Industry Analysts corporate members can download the report by clicking here.
A separate report from the same survey found that staffing firms listed diversifying their client base as one of the best decisions they made while other firms cited not diversifying their customer base as one of the worst decisions.