Michael Page provides a very detailed account of its business model
As we have said, Michael Page revealed its results this week and its share price promptly plunged.
Aside from the precipitous reduction in the value of the company, there were other things of note at the time of Michael Page's revelations. Included in its results was some detailed stuff on how the business of recruitment actually works. This, we have summarized as follows:
1) Almost all the costs are staff costs
75% of Michael Page's cost base 'relates' to its staff. This is considerably more than at an investment bank. The implication would appear to be that in a weak revenue environment, recruiters are even more at risk than bankers.
Michael Page admits as much, saying: "The main opportunity for reducing our own cost base is headcount."
2) It takes a while before new recruiters are up to much
When revenues increase, Michael Page initially relies on its existing 'infrastructure' to grow and then hires new people. However, "it takes time to train staff before they become fully productive." This inhibits its ability to grow revenues in any one quarter.
3) Recruiters like Michael Page only make money when they actually make a placement
As a contingency recruiter, Michael Page doesn't make money when it sifts through CVs. It doesn't make money when it provides banks with a short list. It doesn't make money when it sends candidates for interview and debriefs them afterwards.
It only makes money when a bank actually hires one of its candidates. And if a client cancels an 'assignment' at any stage in the process, it won't get paid.
Successful placements are a small minority of cases. For the first six months of 2011, Michael Page's 'conversion rate' (the % of the jobs it started working on which it was actually paid for) was a mere 16.5%.
