Placement inspired me with their relocation recruitment business thinking. They give away money and see a business model in it. Here’s a breakdown of what I see, using a double clean swap.
A clean double swap is a relocation where two identical people with identical jobs, with different salaries, from different regions, switch jobs. The nice thing about clean double swaps is that they make you money, almost magically.
Don’t believe me? Do the math.
Person’s x and y
To make a clean double swap you need two people willing to increase their spending power. Pick someone who lives in a cheap area and makes little and pick someone who makes a lot of money and lives in an expensive area.
I assume you picked identical people x and y working for the same employer in different regions. Let’s give both of them €5,000 and let’s give both of them a 25% raise. And let’s get rich in doing so. Here we go.
Explain real income
The first thing you’ll want to learn to be able to explain is the concept of ‘real income’. Real income is a measure of your spending power. If you move to a cheaper area, your spending power increases. If you move to somewhere more expensive, your spending power suffers.
Here we go
Assume, person x has €12.500 income and lives in an area where everything is twice as cheap as normal, his spending power (R) is $25.000.
Assume y makes $100,000 and where he lives everything is twice as expensive.
Offer a raise
Tell person x to go do the job of person y.
Offer x a salary of $60,000.
A 380% raise in dollars!
This amounts to a real income for x of R(x2) = R(x1) + 20% = $30,000
Offer x to pay $5,000 for relocation costs.
Offer y the same:
Tell person y to go do the job of person x.
Offer x a raise of 20% in real income!
This amounts to a real income of R(y2) = R(y1) + 20% = $60,000
Offer y to pay $5,000 for relocation costs.
And there you have it
In total, this will set you back $60,000 + $30,000+ $10,000 = $100,000. But, as x and y start working for you, your revenue is $112,500, including $12,500 profit that generated from thin air.
You just let two identical people switch identical jobs, gave both of them a raise and still made $12,500. This is magic! And for your clients your service can be completely free of charge!
Sadly, if claim your product is free of charge, people might not appreciate it fully. Giving everybody raises and not asking anything in return might seem suspicious.
It would be easier to understand if Placement took a cut of the raise, a kickback. If they’d do that, people would understand how Placement makes money. So that’s what they do:
K = kickback
10% of salary for 32 months
K(x) = 30000 / 12 * 32 * 0.1 = $8,000
K(y) = 60000 / 12 * 32 * 0.1 = $16,000
K = $24,000
P = profit
Profit is revenue (salary) plus kickback minus cost.
P = S + K – C = $112,500 + $24,000 – $100,000 = $36,500
There you have it. Two identical people unleashed geographical barriers to go work in identical jobs. The labour market was back where it started. And Placement earned $36,500.
x and y, among them, lost $46,500
Whether the above captures Placement’s model or not. It sure is fascinating. What other vectors, besides geographical, can we come up with? Let’s hope Placement appreciates our thinking and shares more some more of it’s magical thinking.