How to Start a Temp Agency

Part 1 - How to start a Temp Agency business - Background

Temp agencies and staffing centers recruit work talent on behalf of their client employers. The terms “staffing services” and “staffing firm” are the most comprehensive ways of describing this business, since both of these include all three forms of possible worker recruitment: temporary employment (possibly just a single day); direct hire (the immediate placement of full-time help); and temp-to-full-time. This last area involves delivering workers on a temporary basis who might eventually be hired full-time by your client after a trial period. Some staffing firms provide only some of these services, but most offer all three.

Our guide is in 3 parts:

• Part 1 - How to start a Temp Agency 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 temp agency?

Like many small businesses, this one can be started with you as your sole employee. Unlike many business categories, however, you won’t always be able to start this one in your spare bedroom. While you won’t often be inviting clients to your office, you will need room to host prospective workers. You’ll want to sit across from them to see how they present themselves and respond to interview questions. Depending on the expected volume of applicants per recruitment call, you could receive a lot of visitors at one time. So think of square footage and location (you’ll want to make it as accessible as possible to applicants who might have to rely on public transportation).

Here’s how your annual start-up costs might break down:

Office — $5,000-10,000, but this figure is highly variable depending on your city and location within the city. Here’s a little guidance on typical costs. Depending on your type of recruitment business, you might make a deal with the owners of an underused warehouse for receiving talent, at a very low cost. If you’re recruiting doctors, engineers or other professionals, you’ll want to invest more in presentable space. However, if your professional talent base is national or even international in scope, you might conduct most of your business by email, phone and Skype, thereby greatly reducing your office needs.

Phone, business cards, website development and other office needs — Several hundred dollars, at least.

Office automation — $3,000-5,000. You’ll need not only a computer and printer, but you might also need a workstation so that applicants can fill out electronic applications. There are also payroll and HR software programs in which you’ll want to invest to streamline job searches, applications, job scheduling and payroll responsibilities.

Temp worker wages — variable. Since this will be based on prevailing local wages and your volume of placements, it’s hard to set an estimate. But remember that there could be several weeks between when you must pay the wage and you get paid by your client, unless you can command faster client payment.

Membership in local chamber and other relevant organizations –– Zero to several hundred dollars. This will depend on your client and talent pool. If you’re mostly recruiting minimum wage, temporary help, you’ll spend less than if your talent pool consists of professionals who belong to multiple organizations and have other firms competing for their services.

Advertising — Perhaps $10,000 or more. You’ll frequently post to job boards. While your clients will either reimburse those expenses or you’ll roll the cost into your fee, this is likely to be an upfront cost that won’t we reimbursed until later in the recruitment process. Here’s a look at typical job board costs, though by buying in bulk you’ll pay less. 

What are the ongoing expenses for a temp agency?

Your most significant ongoing expense will be the wages you must pay non-permanent placement workers. Remember, to the temp worker you’re the employer, not your client, and they need to be paid weekly. If you’ve contracted to be paid monthly by your client, this delay could be pricey. Consider the services of a payroll funding service such as this to cover that delay.  

Who is the target market?

Your best clients are likely to be those who regularly must hire. This might be because their business is growing so quickly they can’t keep up with hiring, or because their workforce needs fluctuate day-to-day or with the rise and fall of business conditions. In that circumstance, the client is likely to seek temp workers on a moment’s notice.

Other motivated prospects include employers who don’t have the time or resources to go through resumes and job applications or feel that they need a third-party expert opinion on hiring decisions. This might particularly be the case when employers seek highly compensated or niche talent, in which case the hiring might be a major investment.

Among the workers who’ll sign up with your agency, this will include those who are willing to work on a temporary basis while seeking eventual full-time work, as well as those who prefer the flexibility and changing environment of temp placements.

How does a temp agency make money?

For the placement of temp employees, staffing firms will take an hourly rate from the employer and pay the temp worker from that amount. For instance, the employer might pay you $25 an hour and you pay the worker $15 (minus the various withholdings such as taxes and FICA; you are the actual employer in this scenario, so you’re responsible for all payroll costs). In the case of placing a direct hire, your firm will charge a fee based on the starting annual salary of the new employee — typically 10-33 percent.

Some staffing agencies might instead provide their services free to employers and charge the workers for a hire, though this is rare today. You might also generate income by consulting with employers on recruitment and/or screening services without actually placing the candidate, in which case you’ll charge a flat rate or hourly wage.

How much can you charge customers?

The amount can vary from ten dollars an hour or so for a low wage temp worker to several tens of thousands of dollars for the direct hire of a professional.

Prevailing wages in your location and fees charged by the competition will also factor into your revenue stream.

How much profit can a temp agency make?

This expert source puts your annual earning potential at $103,000, but that’s highly variable. Your take-home pay will depend on many factors, including sales success and the compensation level of your talent pool. If you’re recruiting minimum wage factory or warehouse workers, you’ll make significantly less per placement than if you represent engineers or physicians. However, you’ll also spend less time and energy on a lower-paying placement than when representing a professional.

How can you make your business more profitable?

Consider adding training, resume writing and other job-aid services to your menu. For this, you might contract with large employers going through significant layoff activity who want to provide outboarding services that will help their laid off employees find work. Also consider teaming with your local community college to implement training services that will upgrade the skill set of applicants. You can generate income by taking a percentage of tuition while at the same time presenting your clients with a more work-ready workforce.

Day-to-Day and Growth

What happens during a typical day at a temp agency?

In your position as an employment broker, your daily responsibilities are likely to include the following:

• Pitching your expertise to the human resource professionals and office managers who will be the decision makers among your client base

• Posting job descriptions to job boards and other places where they’ll be seen by applicants, and creating additional ways of attracting talent

• Conducting job interviews, screening applicants and making hiring recommendations to your clients

• Maintaining and updating work schedules

• Managing payroll services and income inflow and outflow

What are some skills and experiences that will help you build a successful temp agency?

Sales abilities are critical because you might have a lot of competition, and all similar firms in your field have access to the same talent pool. Find a way to differentiate your firm from others, perhaps by your attentiveness, attention to detail or screening skills in recruiting talent.

Screening job canidates in a quick and effective way not only leads to better retention within the jobs but allows you to help a greater number of clients. 

What is the growth potential for a temp agency?

Your company’s success will be based on your sales ability and greatly affected by the economy. If you mostly provide employers with temporary workers, a challenging economy might be most beneficial to your bottom line. That’s because in a weak economy employers are hesitant to make significant long-term workforce investments when they’re unsure of their revenue stream even a quarter or two down the road. In this case, they’d rather bring on workers they can immediately discontinue using with no severance costs.

On the other hand, during good economic times, clients might come to you for temp or full-time workers because their hiring needs are so great they can’t keep up on their own. Your growth will depend on how you can take advantage of local and national economic trends to provide the services needed.

What are some insider tips for jump starting a temp agency?

You’ll be ahead of the game if you first serve as a recruiter or are otherwise employed at a staffing services firm. A background like that will help jump-start your business and avoid a few nasty learning curves.

Also, know the workforce needs of your community. If you’re in Silicon Valley, you’d better know about digital technology and the region’s thirst for software engineers, computer scientists and the like. If you’re in a setting reliant on more traditional industry, it’s likelier that you’ll be recruiting steelworkers, warehouse workers and truck drivers.

But stay ahead of workforce trends. Communicate with local universities or community colleges to see what employers will need next year, or partner to deliver training needs that will keep your talent pool on the cutting edge.

Also, if you know a particular industry well — say, for instance, you spent years working as a licensed practical nurse — consider specializing within that niche. It will not only make it easier to convince clients that you can identify with their needs, but you’ll also know how to find and attract top talent within that narrow field. You’ll literally be speaking their language.

How and when to build a team

If you’re busy, you’ll really be busy. Finding, attracting and screening talent is a different skill set than selling your services to client employers or the detail-oriented duties related to payroll and tax services and work scheduling. As your growing revenue base allows, invest in employees who specialize in areas you’d most like to step away from. If you enjoy sales, hire payroll services personnel who have more talent for the detail work.

Since your salespeople will most likely be at least partially compensated through commissions, you might find that recruiting a competent sales staff is a worthwhile investment without a lot of upfront cost.

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

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