Recruitment Marketing Budget as a Percentage of Gross Profit – Are Times Changing Again?
One of the most frequent questions we are asked is around recruitment marketing budgets, specifically ‘what should be spent on marketing delivery and paid advertising?
For most recruitment agencies, the largest marketing expenditure is dedicated to candidate attraction, historically this was focused on newspaper adverts but today is almost exclusively online job boards. Other significant marketing expenses can include the marketing delivery (either in-house or outsourced), collateral, sponsorships, events, exhibitions or online advertising.
Note that I say “can” include for the second group. This is because it is still very common for an agency’s marketing activity to be limited almost entirely to job boards. If anything additional is undertaken, it is done with very little strategy, with direction generally coming from the Business Directors and implementation spread across the administration function.
There is nothing wrong with the approach outlined above, however we’re now seeing a new breed of recruitment agencies that are taking advantage of this complacency, by investing in marketing as a competitive tool to support them as they very quickly scale their business and become some of the most recognisable brands in their sector/s. To achieve these results they have had to look at marketing in a different light, especially when it comes to budget.
Recruitment Marketing Budget as a Percentage of Gross Profit
One of the best ways of ensuring you are keeping up with industry is to track marketing spend as a percentage of gross profit*. To find out what this figure looks like throughout Australia and New Zealand we approached RIBreport.
Interestingly, the RIBreport data shows that pre-Global Financial Crisis (GFC), the median marketing spend as a percentage of gross profit was 8%. This figure is in-line with global data outside of the recruitment sector which suggests between 7% and 8% is a good guideline, although obviously this can vary greatly depending on the size, marketing position and future plans of the business.
However, in the recruitment sector, after the GFC this percentage declined to less than 5% by 2010 and hasn’t increased significantly since. The main reason for the initial decline is the obvious need to cut expenditure during tougher economic times. It is surprising though that this figure didn’t recover in-line with the economy. Whilst there are many potential reasons for this, alongside increased efficiencies, the rapid decline in the usage of comparatively expensive client paid print advertising is likely the other main culprit. This is because it was common to on-charge the cost of the advertising to the end-client and for the five-year period from 2010 to 2015, there were very few alternatives available, so this marketing avenue ceased to exist.
With the rise in popularity of online or digital advertising for both candidate attraction and branding there are now more marketing opportunities available and we have observed recruitment agencies starting to take advantage of this.
As an example, only in the last 12-18 months has LinkedIn, the industry’s marketing barometer, begun to sell marketing orientated packages directly to recruiters. These include channels typically utilised by consumer marketing, such as sponsored content packages and leads capture pages. We’re also starting to see a new generation of digital co-branded client paid advertising appearing, with custom video and graphic design content playing a key part in this.
It is still too early to draw any hard conclusions from a data perspective, but the RIBreport figures for the first part of 2017 do show a very slight increase from the year prior (+0.3%).
Rule of Thumb
Whilst the ratio of marketing budget to gross profit may not ever jump back to pre-GFC levels, if you want to create a competitive advantage for your agency through marketing, then it is essential to allocate budget not only for job advertising, but also for the strategy and delivery. Things like written content, video, Pay Per Click or Pay Per Impression advertising, social media management and newsletters all require more time and coordination than the marketing approaches of 10 or even 5 years ago.
Our general rule of thumb is that your total marketing budget should factor in between one point five and two times the salary or cost of your marketing function for advertising and talent attraction (including job boards), usually with an even split across the two. If your business is in an aggressive growth mode or requires greater visibility in a shorter space of time this ratio will remain consistent but the overall percentage of gross profit may increase.
Lastly don’t be afraid to remain responsive throughout the year. Setting a marketing budget at the start of the year and sticking rigidly to it doesn’t allow you to be agile, it needs to be reviewed regularly (quarterly) and sometimes new projects may need to be added which could take you above the set percentage but are in line with market changes or innovations.
For those of you old enough to remember when the key topic of discussion was whether or not to embrace a new concept called online job boards, the same outcome is inevitable when it comes to digital marketing. Over the last three years we’ve already seen many real-world examples of how this new approach to recruitment marketing can significantly increase key metrics such as increased volumes of jobs and better job fill ratios. Don’t get left behind.
*In this article, gross profit is defined as permanent recruitment fees plus temporary margin, and margin from any other activities.