SI Review: March 2012

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Nip and Tuck Those Expenses

Cost-cutting strategies for the times

It’s a perennial concern. Costs. Good times or bad, staffing firms have to watch their purse strings. Of course, it’s a lot easier when the economy is booming and businesses have the money to expand. There is wiggle room and cutting costs is not the top priority. Today, however, as the economy slowly recovers from the prolonged recession, businesses are still striving to reign in expenses wherever possible. Our experts suggest different nonconventional methods that businesses might employ to save.

But these measures done right could also help your business grow. Here are 15 out of the box ideas. (In November 2011 we ran an article on 15 sales tips to help firms thrive in today’s economy. This is a companion piece.)

No. 1. Abandon

Traditional Phone Service Sometimes we do a better job with our personal expenses than we do with our businesses, notes Donna Mallard, CEO of Mallard and Associates and partner at Staffing E-Trainer, which provides executive consulting and staff development services to the staffing industry. One of her clients actually reduced the cell phone expense in the office by 30 percent by making the staff and frequently called contacts part of its cell phone provider’s “friends and family plan.” Another way a company can reduce its telephone costs is by converting to an Internet-based phone service, she notes.

No. 2. Use a net savings firm

A net savings firm examines your business for ways to cut costs, and you pay only if they save you money, explains Greg Palmer, former CEO of RemedyTemps and founder of G. Palmer & Associates. Fees are usually a percentage of the amount of money saved — usually much less than 50 percent, says Bryan Peña, Staffing Industry Analysts’ vice president of contingent workforce strategies and research. The company would look at things like your technology costs, your communication costs, your insurances, your health programs — all of your major expenditures — and will help you negotiate better programs.

No. 3. Source like it’s the 21st century

The Internet and social media are not fads, asserts Jim Lanzalotto, who runs Scanlon.Louis, a strategy and marketing outsourcing firm that helps companies grow. “If you haven’t been taking advantage of either, you need to start,” he says. “Figure out where it works for you. Figure out where these technologies come into play.”

And look at new and emerging technologies. He cites a company called StartWire, an Internet job search organizer “that is completely changing the way companies interact with online job seekers.” There are also mobile recruiting applications that help companies find talent in new ways. “Don’t rely on tried-and-true methods; do things differently because the opportunity is out there right now. The world keeps evolving, take advantage of those things.”

No. 4. Centralize recruiting functions

Aaron Green, founder of Professional Staffing Group, a Boston-based temporary and direct hire staffing firm, says his firm has been using a centralized recruiting model for more than 10 years. More recently, in order to cut costs further, the company took those recruiting functions off shore. “Even if you can’t centralize the entire recruiting process, there are still pieces that you can centralize,” Green says. (For more information on the centralized recruiting concept, see “Hiring Hub,” Staffing Industry Review, February 2012.)

No. 5. Act like Santa, save like Scrooge

Offering more benefits to your employees might save you money in the long run by reducing your taxable wage base, Peña says. Take a look at some pre-tax offerings like AFLAC, or some cafeteria insurance plans. “If you increase some benefits or you offer some benefits or give voluntary opportunities for your candidates to buy into these programs, it reduces your taxable wage base under current law, and therefore you save on the statutory expense,” Peña says.

No. 6. Outsource non-core areas

We’re constantly asking, prospects and our clients, “What is your core competency?” We need to practice what we preach, Mallard says. Identify what you should perform in-house, and then outsource the rest to a company that specializes in it, such as your back office, Mallard says. “It is a vital part of our business, but … you could reduce the cost, increase payment accuracy and timeliness,” she says. “You can manage the information better, and ultimately it gives you the opportunity to do what we all want to do, and that is to focus on our own core business.”

No. 7. Adopt a variable compensation plan

A lot of staffing companies have very high labor costs, Palmer says. Indeed, labor costs are typically the highest cost in a staffing firm, with a large portion of it in the fixed category. “My recommendation is to have as much variable cost as possible,” he says. Engineer a compensation system that works both in good times and in bad times. Ideally, “fixed costs should be somewhere between 30 percent and 50 percent of the overall targeted income, with the balance of that being variable,” Palmer recommends.

No. 8. Fail fast and cheap

“Look at the opportunities that are out there, give it a shot, but be prepared with a quick exit strategy,” Lanzalotto says. The key is to know your company, understand what you do, and understand the way you do business. When you start something new, start small. If it works, keep it running, invest to keep it going and maybe expand it. Take the net savings firm strategy. Take a look at it and apply it to something that’s not core to your business. There’s a good chance you’re going to find some savings there. If you don’t find it, just get out of it. Find something else to do. So you have an opportunity to be nimble and take advantage of things like that. Nobody likes to fail, but if you are going to fail, do it fast and cheap.

No. 9. Jog the slow payers

Today’s slow payers may be tomorrow’s bad debt expense. One of the biggest constraints the industry faces is cash, Green opines. Even though the industry has returned to profitability, companies still must make sure the cash comes in quickly in order to keep the organization growing. If you’re writing off bad debts because clients are slow payers or not paying at all, as their access to cash is limited, you can certainly end up hurting your bottom line and increasing your cost.

No. 10. Embrace the dark side

From a procurement standpoint, you want to question every expense, and also look for opportunities to work with your partners’ procurement departments for additional spend leverage, Peña says. “When I was in procurement, I would always let my partners buy computers for their facility through my computer contract, because I had a good rate and the additional spend helped me meet volume commitments. It helped me leverage my spend better.” So think like a procurement department, and their objective is to get leverage. If you can find a complementary spend category — copiers, small package freight — those are the hidden areas where you might be able to find some additional savings, and further engrain yourselves into your clients’ lives.

No. 11. Educate buyers on

SUTA increases We’re all concerned about how the higher SUTA base wages and the higher rates are affecting our industry and our businesses, Mallard says. The rates are up more than 30 percent, on average, since 2008. So you need to educate your clients. Take the documentation in and show them your increases as well as the state increases. And then you have several options. You could share the cost, or pass along the entire increase. “You know your clients to know whether or not that’s something that’s feasible,” Mallard says. “Emphasize, obviously, that this is related to the cost, it is not related to your profits, because a lot of time that is what they assume, that you’re increasing your rates for your profits.” Another option is not to pass on the increase now on existing workers, but to increase the rates as people take on new assignments. Keep in mind, also, that if the rate should drop, which we don’t expect any time soon, then you can pass that along as well.

No. 12. Add a remote sales executive to a new market

This ties into the recruiting hub model discussed in method No. 4. Gross profit percentages are going to be lower for the foreseeable future, Palmer says, so we need to develop more unique and flexible business models. So while you have your hub, you can also minimize overhead expenses by not having a branch office to service a region — just assign a sales exec. You don’t have to go brick and mortar any longer to expand your footprint.

No. 13. Become a job board

Often, a customer will tell you not to send a candidate you found on a job board or that they expect a reduced rate on people you find on a job board. Change that; create your own “uberfocused and targeted job board,” suggests Lanzalotto. Look at the skill sets for which you just can’t find people — occupational health nurses, off shore oil drillers, widget makers, whatever it may be. Build a job board to get those folks. It will reduce some of your costs and complement your existing recruiting and sourcing efforts. You don’t bail out of all these different deals you have, but leverage them. Go ahead and attract candidates to you, and if you are the only one who found that candidate in that environment, and you could turn that into something that is valuable for yourself.

No. 14. Migrate part of your workforce offshore

Many jobs can be done from any location that has a phone, a computer and an Internet connection, says Green, whose firm, PSG Global Solutions, runs a recruiting center out of the Philippines. “What we’ve found is that as clients migrate 10 percent of their workforce offshore,” Green asserts, “they’re able to add 20 percent to their profitability — or 1 percent to 2 percent in terms of their EBIDTA points.” And that is true for small or large organization, he continues. “There are a lot of cheap suppliers out there; you just need to make sure you are working with someone who doesn’t simply add a little cost to your structure, but instead helps you reduce your costs overall to get those EBIDTA gains.”

No. 15. Put someone in charge of value

In manufacturing, there’s a concept called lead manufacturing, which takes a look at everything within a company’s process and determines whether it adds value, Peña explains. You want to appoint one person who’s responsible for evaluating every aspect of your operation, he says. “Is that contract a good contract? Is this a good position even to have? And if it doesn’t add value, put him in charge of identifying it, qualifying it and killing it.”

Conclusion

There are those who believe that the best lessons are learned in a downturn. And now we hope you can start building your business. Get creative, be bold and take those financial steps that will allow you to beat the competition. And as always keep us informed. If you come across any strategies that have worked for you, do let us know. We are here to help you do your job better.

This is an excerpt from the last Executive Forum. It has been edited by the editors at Staffing Industry Review.

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