The flaw of averages
Hitting the wrong target can be expensive
Setting the right target is vital. Get it wrong and it could be very expensive for you, as this example shows.
A couple of years ago an operations director was proudly telling me they had a big push to increase their average rates. This ops director had been promised a chunky bonus for getting it done, so he’d come up with a plan to get every consultant focused on their prices.
One week in, and the recruitment agency wins a large contract with a major player in their industry. Everyone’s delighted… except the ops director.
You see, the big contract included a perfectly reasonable discounted rate based on the volume of business. But this discounted rate meant that the agency’s average rate would go down, not up.
So his grand plan to raise average rates was scuppered within a week. And his chances of a big bonus had disappeared just as quickly.
If the senior team had taken the time to identify different rates from different types of clients, and set different targets accordingly, then they could have focused on driving up the rates for small-volume clients. And the ops director’s bonus would still have been up for grabs.
This is why I spend time dissecting a recruitment agency’s pricing data when starting a big pricing project with them.
There are plenty of perfectly good commercial reasons why the overall average rate might go down. So I always go deeper into the data and split out different types of revenue.
Only then do we agree exactly what we measure, where we want it to go, and why.
If you’re looking to improve your pricing in 2023 and want an expert to help you set the right targets, simply drop me a line and I’ll explain how I can help you.
Jon
P.S. We’re in for yet another uncertain year (thanks 2020s, it’s been a blast).
As a recruitment leader who’s been through the pandemic, multiple lockdowns, 17½ prime ministers in the last 12 months, and so on, you know there are opportunities for you in that uncertainty.
But you also know that predicting how big those opportunities will be - and setting targets for yourself and your team - is not easy. The answer: get into the details, set your benchmarks, and find the right targets to aim for.
If you’re looking to improve your pricing in 2023 and want an expert to help you set the right targets, simply drop me a line and I’ll explain how I can help you.