James Osborne, The Recruitment Network (TRN): Could a Smaller Recruitment Agency Be a Better Business?

For recruitment agencies, growth has traditionally been relatively easy to recognise. More consultants, bigger teams and additional desks all provide visible evidence that a business is expanding. Yet a larger workforce does not necessarily result in a more profitable company, particularly when the cost of employing people and winning business continues to rise.

It is a question James Osborne, Co-Founder and Chairman of The Recruitment Network (TRN), believes agency leaders should examine more closely. Rather than assuming that greater headcount is the route to growth, he asks what a recruitment company might look like if it could operate with half the people and become twice as profitable.

The point is not that recruitment businesses should become smaller. It is that headcount alone says relatively little about the quality or financial health of an agency. As technology increases what individual recruiters can achieve, the relationship between the number of people employed and the value the business creates is beginning to change.

The traditional recruitment model makes the relationship between headcount and growth understandable. More consultants create more capacity to work vacancies, develop clients and generate placements, so hiring additional recruiters has often been an obvious route to increasing revenue.

However, Osborne argues that agencies also need to recognise how much the economics of running a recruitment business have changed. The costs associated with acquiring clients and candidates, employing people and operating an agency have increased significantly. As a result, growing revenue without understanding the profitability behind it can give an incomplete picture of performance.

One TRN member provides an interesting example. Osborne explains that the business previously employed 67 recruiters but now operates with 15. Despite the considerable reduction in headcount, it is generating approximately £1.3 million to £1.4 million in EBIT, compared with around £250,000 when the business was much larger.

It is an individual example rather than a benchmark for the wider industry, but it demonstrates why headcount can be a misleading measure of success. The smaller version of the company employs considerably fewer people while producing substantially more profit.

This also raises questions about how agencies measure individual performance. Billings and gross profit remain important, but Osborne believes businesses should look more closely at the actual net contribution generated by individual recruiters, clients and jobs.

He describes a productivity illusion in which consultants can appear busy, achieve their activity targets and generate revenue without necessarily creating the level of profit the business assumes. In one agency he examined, some consultants regarded as top performers based on revenue became some of its lowest performers when their actual profitability was analysed.

For agency leaders, this means understanding what remains after the cost of generating that revenue has been taken into account. A high-billing consultant working low-margin business may ultimately contribute less than somebody producing lower revenue from more profitable work.

The same analysis can be applied beyond individual recruiters. Certain clients, jobs, sectors and service lines may consume considerably more resource than their headline revenue suggests, making a clearer understanding of net contribution increasingly important.

Osborne also questions whether some of recruitment's established productivity benchmarks have kept pace with changes in the industry. He points to the long-standing figure of around £120,000 GP per recruiter, which has remained familiar despite inflation, increasing employment costs and major improvements in recruitment technology.

Among some of the businesses he works with, minimum expectations are now closer to £250,000–£300,000, although appropriate targets will naturally vary according to sector, fee level, role type and business model. Osborne also gives the example of a 29-recruiter agency producing an average GP of £460,000 per recruiter across the entire team.

These figures are more useful as a prompt for scrutiny than as targets every agency should adopt. The important question is whether businesses are making decisions about hiring and growth using productivity assumptions that may no longer reflect what recruiters are capable of producing.

AI and automation make that question particularly relevant. If technology can reduce administration, accelerate research and make better use of existing candidate and client data, individual recruiters potentially have more capacity to concentrate on the work where their judgement and relationships add greater value.

Osborne's emphasis is on using technology to increase the capability of people rather than simply using it to remove them. He talks about successful agencies looking for ways to ‘superpower and supercharge’ their teams with technology and AI, creating an opportunity to improve productivity without assuming that additional output always requires additional headcount.

This distinction matters. For an agency planning its next stage of growth, the first question may no longer automatically be how many recruiters it needs to hire. It may be how much more its existing recruiters could achieve with better technology, processes, data and management.

Improving profitability does not necessarily require a dramatic restructuring of the business. Osborne advocates examining several areas of the agency and identifying relatively small improvements that, collectively, can have a significant impact on net contribution.

That could include consultant productivity, fill rates, fees, client profitability, administrative time and the cost of delivering individual assignments. A modest improvement across several of these measures can potentially have a greater effect on profitability than simply adding another recruiter and expecting revenue to follow.

It also encourages a different approach to business planning. Rather than beginning with the number of people an agency wants to employ, leaders can start with the economic performance they want to create and determine the team, technology and operating model required to deliver it.

None of this suggests that successful recruitment businesses should remain small. Osborne also points to high-performing agencies that are increasing their headcount, demonstrating that scale and productivity are not mutually exclusive.

The more important distinction is between increasing headcount and creating profitable growth. A 100-person agency can be a strong business, just as a 15-person agency can. What matters is how effectively those people generate value and how much of that value ultimately contributes to the profitability of the company.

For agency owners accustomed to viewing team size as a sign of progress, that may require a change in mindset. The question is not whether recruitment businesses should become smaller, but whether they can become more productive before they become bigger.

• Headcount alone does not provide a reliable measure of an agency's financial performance.
• Revenue growth should be considered alongside profitability and net contribution.
• Recruiter, client and job-level profitability can reveal a different picture from headline billings.
• Established productivity benchmarks may need reviewing as costs, technology and working practices change.
• AI and automation could allow agencies to increase output without increasing headcount at the same rate.
• The objective is not necessarily to build a smaller agency, but to ensure that growth creates greater economic value.