Kelly Services Australia's decision to walk away from some of its largest clients over the past four years has made the business more profitable, according to CEO Karen Colfer.

The company was losing money on some of its largest-revenue contracts, and a change in delivery was urgently needed to make those low-margin accounts more sustainable, Colfer told Shortlist.

"Our biggest client in terms of revenue – every time we touched it we were making a loss. The margin was very low, but it was all the processes associated with a large account [that pushed cost up]... It doesn't end with sourcing a candidate and placing a candidate, there's [administration] you need to deliver," she said.

"Back in 2010, I looked at the top 10 accounts and the top five. Once you assessed the [cost of doing business], they were unprofitable... There's no point if the revenue's increasing but you're not making a profit."

Some clients worked with Kelly to create a cheaper delivery process, while other relationships were lost, said Colfer.

"We went through a process internally [of] 'can we change anything to help us make money on this account?'. If that was a no, we engaged with clients and were upfront about the position we were in... [to] see what their reaction was," she said.

In cases where the client couldn't – or wouldn't – compromise, Kelly made the decision to exit, Colfer said.

"Our number one client – as soon as we exited that our margin nearly doubled. Although the revenue line depleted in quite a large way, the gross profit and margin were very profitable."

Kelly Australia, as a result, expects its best calendar-year financial result in more than decade this year, despite a tough start and office closures in the June quarter.

Changing remuneration key to reducing delivery cost

Kelly also restructured consultant remuneration in an effort to reduce its delivery costs, with a particular focus on recruiters working on preferred supplier agreements, said Colfer.

"When I arrived, everybody was a 360 consultant and that's very expensive – to pay people a full bonus [and] a high base on an account which is low margin and not necessarily high volume," she said.

"The remuneration model is different for PSA consultants. They're not remunerated on GP; they're remunerated on meeting the service-level agreements, which are very different. So that's time-to-fill, quality of the process, [and] speed. In some cases, these consultants were taking a potential drop in salary."

Many staff, however, were interested in taking on these roles, leaving a vacuum of 360 consultants, Colfer said.

"We gave everyone the opportunity to actually make a decision about what role they wanted to take on... There was a lot of interest from people already in Kelly to move into the PSA team," she said.

"What was harder [was that] the majority did not want to do the 360 role... The last thing they wanted to do was to pick up the phone and do any form of telesales."

The lack of interest from existing staff and a skills-short recruiter market meant Kelly had to look overseas to find people to do the end-to-end job, said Colfer.

"It was really hard to find experienced, successful consultants that wanted to join the brand back then, because why would they leave a well-established desk?... So I had to actually go back to the UK to recruit consultants to come and join us, and I had to do that for the first 18 months."

Winning a PSA is just a "ticket to the dance"

Recruitment agencies often have to "work blind" when pitching for PSAs, but making educated guesses on which companies will compete for the contract and how cost-effective their own delivery can be will make the pitch more worthwhile, said Colfer.

"Try to assess who's going to be pitching for the work; what kind of percentage they've got, compared to what they're going to go for; and think about your delivery model," she said.

"So if this means you might be filling 7,000 roles a year, [you need to ask] how do we do that? What type of headcount do we need? Are the [service-level agreements] onerous? Are they realistic or not?

"Being appointed onto a panel is what we call 'winning a ticket to the dance' – that's all it is. You still need an active business development plan to grow your share of the wallet."

Turning down, or walking away from unprofitable accounts takes courage, but the industry would benefit immensely if more agencies took that path, Colfer added.

"There's always someone out there that will pick up the work you don't want to do. If they can make money out of it, good on them, but this is where we don't do each other any favours in the industry; someone is always racing to the bottom."

Do you have insights to share on agency growth or management? Email Hannah to share your experience.