How to Start a Recruiting Business

Part 1 - How to start a Recruiting business - Background

This type of business requires the recruiting agency to establish positive relationships with its clients, by matching businesses with professional, well-qualified candidates.

Recruiting agencies do best when they establish positive relationships with candidates, by providing them with significant interviews with suitable companies.

As distinguished from temporary work agencies, recruiting agencies typically focus on sourcing skilled professional individuals for full-time, long-term positions.

Our guide is in 3 parts:

• Part 1 - How to start a Recruiting business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a recruiting business?

This business can be started as a sole owner/operator. Here are the basic requirements for this business:

• A business license (around $300)

• Form an LLC (around $500)

• Business cards ($50)

• Promotional materials ($100)

• Service agreement forms ($25)

• Space to work from (can be a home office or allow $500 per month rent)

• A telephone ($50 per month)

• A computer ($500)

• Software (cloud services are $50 to $100 per month)

• An Internet connection ($50 per month).

• A business banking account (free)

• An accountant (if you are not going to keep these records yourself)

If you plan to sell a large amount of items, you may need a storage space for your inventory. You can find storage spaces for around $75 per month.

This business can easily be started for less than $2,000.

What are the ongoing expenses for a recruiting business?

The monthly expenses are rent, telephone, Internet connection, promotional materials, conference/convention attendance fees, and other marketing expenses. A simple one-person operation may have expenses of less than $1,000 per month.

Who is the target market?

The best clients are larger organizations who have a constant need to fill a vacancy and have steady employee turnover at the senior management levels.

The other side of the business is recruiting top talent and having a strong database of professionals to draw upon for any placement opportunities that come up.

How does a recruiting business make money?

If the organization decides to hire a person brought to them by a recruiter, then they will pay a commission to the recruiter, which is a percentage of the new hire’s salary as compensation. Another business model is possible if the recruiter is paid a monthly retainer to search for potential employees, regardless of whether a new hire is found.

To help get new business and clients, some recruiting agencies will allow clients to hire job candidates on a contract basis and pay the recruiting agency a variable commission based on the number of hours worked under the contract.

By being successful in these efforts, recruiting agencies create repeat clients.

How much can you charge customers?

The typical commission for a placement is around 10% of the annual salary for the position or the equivalent of one month’s pay.

Some organizations like to outsource some or all of their recruitment efforts to companies that specialize in doing this work. In this case, the recruiting agency will have a contract that provides for the payment by the organization of a monthly retainer for the ongoing recruitment efforts. This monthly retainer can be a few thousand dollars to many thousands per month depending on the extent of the recruitment activities.

How much profit can a recruiting business make?

An average recruitment and placement can take between 30 to 90 days. If the annual salary for the available job is $100,000 and the commission for the placement is 10%, then the revenues for a successful placement would be $10,000 minus the expenses. If the recruiting agency is a simple one-person operation and only one position is filled during each three month period this would create $10,000 – $3,000 = $7,000 in net profits or about $28,000 per year.

Many recruiting agencies make multiple placements per month, so the profit potential for this business is very attractive.

How can you make your business more profitable?

The easiest way to increase profits is to place people in positions that pay higher salaries. Some recruiting agencies specialize in placing C-level senior management. The positions of CEO CFO, CTO, COO, and CMO all command very high salaries. Recruiting companies who successfully place people in these C-level positions make significant commissions.

Organizations like to work with top performing recruiting agencies to fill C-level positions because typically the people who are qualified candidates for these jobs are already employed by other companies. By working with a recruiting agency, the entire process can be kept confidential until the person and the business that is hiring them agree to the terms of an employment contract.

Recruiters who make themselves available to talk with potential placement candidates after work hours and on weekends increase their chances of finding good candidates. This is because many prefer to have confidential conversations about taking a new position from their homes, instead of taking such calls at the work site of their current employer.

Day-to-Day and Growth

What happens during a typical day at a recruiting business?

There are two facets of this business. The first major activity is finding organizations that will agree to sign a contract and pay a commission fee to a recruiter who brings a qualified professional person to the organization’s attention that the organization subsequently hires.

The other side of this business is for recruiters to find qualified professionals and build up a database of those people that might be interested in a potential placement by the recruiting agency. These professional workers may not be actively looking for a new job and may be currently employed. However, in the interests of career advancement, they may consider taking a new position, which offers better pay and greater benefits than the current job they already have.

Most of an agency’s day will be spent sending in résumés of qualified candidates and corresponding with both clients and businesses.

What are some skills and experiences that will help you build a successful recruiting business?

Recruiting is a “people” business. It is important to understand the needs of both the employers and the employees. The goal is to become a good matchmaker that places people in employment positions where they are most likely to succeed. It is important for the employer to be satisfied with the work that they do and the employee to like the new job.

It helps to have previous experience working for another recruiting agency, before going out and starting one of your own. Being an expert at networking with business professionals and organizations is a necessary skill. Having an extensive list of business contacts gives someone an advantage in starting up a new recruiting agency.

What is the growth potential for a recruiting business?

Many recruiting agencies focus on a local area as well as people who are willing to relocate. A recruiting agency also has the potential to expand nationally and internationally.

One of the largest recruiting agencies is the Robert Half Agency, which specializes in placing accounting, finance, and technology professionals. The company has over 400 offices worldwide in many different countries. During 2015, the Robert Half Agency had revenues of over US $5 billion. The market valuation in January 2017 for the company is US $6.65 billion. The stock trades on the New York Stock Exchange as RHI.

What are some insider tips for jump starting a recruiting business?

One person worked for eight years at a recruiting agency before starting his own company ABrecruit. He recommends using the database software offered by Chameleoni, which can be started for free and as the activities increase, is a low-cost way to manage the recruiting agency.

How and when to build a team

After having some success with initial placements and earning enough commissions, it is possible to expand staff to increase the placement activities. Each new staff member can concentrate on expanding the opportunities in a particular industry sector or working with a certain type of professional. By using this strategy it is possible to build up a good reputation from efforts that are focused on gaining useful expertise and contacts in a particular industry.

Part 2 - Is a Recruiting business the right fit for you?

Part 3 - Action plan to launch your Recruiting business in 90 days