Gross profit (GP) in recruitment
Gross profit in recruitment is fee income after the direct cost of delivering it. On a perm placement the whole fee is gross profit; on a contract it is the bill to the client minus the contractor's pay. Many UK agencies call it net fee income (NFI).
GP is the number agencies run on because it makes perm and contract comparable. A perm fee has no cost of sale beyond the consultant's time, so a 20 per cent fee on a £60,000 salary is £12,000 of GP. A contract bills much more than it earns: a contractor at £660 a day with £550 pay generates £110 of GP a day, and needs about 109 working days, roughly 22 weeks, to match that single perm fee. After that it keeps going: over a 46-week year the same contractor produces about £25,300.
That recurring quality is what the contract run-rate measures: the weekly GP of every contractor currently out. Twenty contractors at £110 a day, five days a week, is a run-rate of £11,000 a week. The run-rate falls every time a contract ends without an extension or a replacement start, which is why contract owners watch end dates as closely as new placements.
GP is not net profit. Consultant salaries and commission, rent, software, funding costs and bad debt all come out of it. Agencies commonly compare GP per consultant to judge productivity, and GP against total staff cost to judge the business, but those ratios vary with the perm and contract mix, so comparisons between agencies need care. The label varies too: some agencies use NFI for GP after rebates and credit notes, others before. Whichever it is, write the definition down.
GP goes wrong at the edges. Perm GP is counted when an offer is accepted and not reversed when the candidate withdraws or the fee is rebated. Credit notes reduce the invoice but not the GP report. Inside-IR35 engagements where the agency is the fee-payer are reported at the full spread without deducting employer's National Insurance. Contracts billed in another currency are reported without the exchange movement between invoice and payment.
How Vayora handles it
Vayora stores gross profit on every contract invoice, the bill less contractor pay, and keeps a running total on each placement that a credit note unwinds. The Contract desk view in Reports gives the weekly GP run-rate of the active book, average margin, margin per hour, and the contracts ending in the next 30 days that will take GP out of the run-rate if not extended. Perm fees and invoiced contract margin feed the same monthly commission statement, so consultant GP and finance's GP come from one set of records.
Contract finance