Data – that’s the difference between a guess and an informed decision. As an HR firm or staffing agency, the sustainability of your business relies heavily on your ability to evaluate its financial health and overall success. Here are three of our firm’s favorite Key Performance Indicators (KPIs) for human resources firm and staffing agencies:
1. Project Profitability:
Tracking revenue and expenses by project equips you to monitor your revenue’s rate of growth at a more granular level. You’ll be able to identify your most profitable projects, determine areas of cost inefficiency, and begin to create the model formula for pricing, resource allocation, and project selection. Monitoring project profitability ensures that your projects are generating a satisfactory return, and quickly identifies any projects with the potential to drag overall profitability down.
How do you calculate it? (Total Project Revenue - Total Project Costs) / Total Project Revenue
2. Gross Profit Margin:
The gross profit margin is a crucial financial metric that measures the profitability of your firm's services. It represents the percentage of revenue that remains after deducting the direct costs associated with delivering your services, such as employee salaries, project-specific expenses, and overhead costs directly related to client engagements. A healthy gross profit margin indicates that your agency is effectively managing costs and generating sufficient profit to cover direct expenses. Comparing the gross profit margin over time or against industry benchmarks can help you evaluate your firm's financial performance, identify cost inefficiencies or pricing issues, and identify opportunities to improve profitability.
How do you calculate it? (Gross Profit / Revenue) x 100
3. Days Sales Outstanding (DSO):
Days Sales Outstanding (DSO) measures the average number of days it takes for your firm or agency to collect payment from clients after invoicing for your services. It reflects your agency's cash flow management and accounts receivable efficiency. The lower the DSO, the faster your agency collects payments and improves cash flow. Monitoring DSO helps you identify any bottlenecks in the payment collection process, implement effective invoicing and collection strategies, and maintain healthy cash flow for your firm or agency.
How do you calculate it? (Accounts Receivable / Total Credit Sales) x Number of Days
It’s important to monitor and manage other financial aspects like operating expenses, profitability by industry sector, and return on investment for marketing and business development activities. Regularly reviewing these financial KPIs and conducting a thorough financial analysis allows you to make informed decisions, identify areas for improvement, and ensure the long-term financial sustainability and growth of your firm or agency.