How AI is increasing revenue in the recruitment sector

20 May 2024

AI and recruitment

In the current economic climate, employers remain cautious about spending time and money on the wrong candidates.

In response, software as a service (SaaS) business platforms, specifically designed to improve day-to-day recruiter tasks and processes, have boomed, creating a thriving sub-industry dubbed ‘RecTech’.

It’s no secret that recruitment agencies are ahead of the curve when it comes to AI, but is further investment the answer the sector needs to bounce back? And is there scope for AI to completely transform the recruitment process in the years to come?

Can AI boost cash profits for a recruitment business?

As reported in M&A activity in the recruitment sector –2023, recruitment firms that adopt AI smart software will likely see increases in their EBITDA (Earnings Before Tax, Interest, Depreciation and Amortization) multiple, which essentially determines the fair market value of a business during the valuation process.

For our recruitment clients, we’ve seen that using AI in their business processes has the potential to improve a subsequent valuation.

One way businesses can achieve this uplift is through time-saving gains that AI can bring. AI can analyse job descriptions and CVs and match the two based on skills, experience, and qualifications. Automated candidate engagements and follow-ups can then be generated to reach out to prospects that are the right fit. This will ultimately reduce costs, increase profits and, in turn, improve a future valuation as the business can sit at the higher end of the EBITDA multiple spectrum.

Additionally, those who introduce AI to their recruitment businesses have the potential to positively disrupt their process and business model completely. We’ve seen recruitment businesses becoming more technology-focused by developing their own AI-backed processes. Some have even brought these to market, adding a technology based product to their existing recruitment service offering. These projects have the potential to be eligible for R&D Tax Credits,  providing valuable tax relief for recruitment businesses looking to invest in new tech or enhance existing processes.

How AI is changing the recruitment process

From a commercial perspective, reducing repetitive admin work and the lengthy hiring process can only be seen as a positive. Also, when the AI tool is safeguarded and fine-tuned it helps to produce candidates that are more aligned to specific companies’ needs.

These AI-generated benefits give recruiters the scope to spend more time speaking to higher-quality candidates. It also gives them the time to increase their human-touch points with both prospects and clients. This can help to lead to the fostering of better relationships between recruiters, their candidates, and their clients; ultimately, helping to fill roles more quickly.

CRM platforms like Loxo/Bullhorn also have AI features designed for applicant tracking, where recruiters can build a portfolio of candidates within one user-interface, which is then used alongside LinkedIn to match the portfolio to advertised roles. This generates efficiencies for 360 recruiters, where usually a substantial amount of time is spent finding target client accounts for their pre-existing candidate pool. RecTech platforms also offer services of scheduling calls and interviews with both candidates and clients.

Larger corporates have increasingly invested in AI-based software to conduct video interviews for initial candidate screening, particularly when hiring for graduate roles. The software conducts interviews using pre-set questions and can process responses and follow up questions in real-time.

Using this in the early stages of the hiring process means large pools of candidates can be processed, without wasting hiring managers’ time. It frees up their schedule to conduct longer interviews with prospects that have passed an initial assessment, allowing for a higher quality process.

What are the cons of AI?

While AI can bring many benefits, businesses should also consider the challenges of implementing it. Here are some of the key considerations:

  • Negative candidate experiences: potential candidates might feel disconnected from the recruitment process if it’s obvious an agency relies heavily on AI or if its AI-driven systems are overly impersonal.
  • A people business: though AI can analyse large amounts of data efficiently, recruitment remains a people business. Recruiters have years of expertise and can provide nuanced judgement, especially when it comes to identifying the right person for the job that their client is trying to fill.
  • Data privacy: recruiters deal with vast amounts of personal data from candidates, which is useful for AI systems to function effectively, however businesses will have to ensure they handle data in compliance with relevant regulations.
  • Technical challenges: AI is still a relatively new concept to the sector, so implementing and maintaining these systems requires technical expertise. There may be challenges in ensuring that the AI is regularly updated.
  • Client interactions: it’s important for recruiters to really understand their client and their needs to ensure that the provide the right service and inevitably the right candidate or team. While AI/technology will help with the process, face-to-face meetings are essential in developing lasting relationships.

How we can help

As mentioned, the use of AI and technology increases the volume and variety of data that can be collected and stored by businesses. At Saffery, we believe that optimising data infrastructure can provide efficiencies and cost savings.

We’ve invested in tools, like Inflo, that are able to analyse client datasets to help form the basis of our advice. Whether advice is related to tax planning or business structuring, with more comprehensive data inputs, we can produce better analyses to support businesses.

And our Cloud Accounting Team has exceptional knowledge of AI tools and products on the market. We support businesses in managing their finances more efficiently using new technology, with the aim of subsequently improving their margins.

If you’d like to discuss any of the points raised, please get in touch with Jamie Cassell.

Read our full 2023 M&A report

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Jamie Cassell
Partner, London

Key experience

Jamie works with a wide range of clients including owner-managed businesses, venture capital and private equity backed companies.