How-To

The Complete Guide to Starting A Recruitment Agency In 2023

It is an exciting journey to start your own hiring agency after years of being a recruiter. But it can also be quite intimidating when you don’t have any business experience. However, don’t let it stop you from turning it into a reality because starting a company, in general, is not an easy thing to do. 

That being said, the whole process of building your recruitment agency from the ground up can become more efficient. Essentially, you need to have the knowledge to run a successful business and know the latest trends in the recruitment industry. 

Speaking about trends, the overall economic outlook for 2023 doesn’t look good. But, thanks to the rapid digital transformation, the recruitment industry is still, in fact, growing. According to Online Recruitment Market by 2027 report, the industry will have an estimated value of USD 43.39 billion growth.

On that note, if you are not sure how to start a hiring agency but want to learn, we have created a complete guide to starting a recruitment agency in 2023. 

Part 1: The Fundamentals of Starting A Recruitment Agency

As stated before, the growth that we can expect in the recruitment market means there is always a demand to hire qualified candidates for organizations. This is because other people are starting new businesses across industries. Hence, with eager candidates waiting to get hired or looking for better opportunities, it is not a stretch to say that recruitment agencies are still needed.

Therefore, as you prepare to start your own business, it is crucial to get the fundamentals right first. 

1. Evaluate your own skill sets

The first thing to do is to know whether you can run a successful hiring agency. Typically there are four skill sets that are vital for you to have. These skills are:

  1. how to source workers, 
  2. land clients, 
  3. match candidates with clients' needs, 
  4. manage as well as train your staff and recruiters.

Hence, it is critical for you to evaluate yourself and spot any gaps that need to be filled. If there are some skills that you don’t have, it’s wise either to master them or partner with someone - whom you can trust- that has them. 

2. Choose an industry

The next step in your journey to starting a recruitment agency is to choose an industry or niche. During this step, you need to be thorough when researching the industry and market. What jobs are in demand from employers in each sector? Also, if you are opening up a firm in a different country, what are the job types available in the area your agency is operating in? By doing this, you can identify the determining factors of your agency’s success.

3. Plan your financials

Subsequently, running a business can be quite challenging without enough funding. Since your recruitment agency is a startup, you need to keep in mind the costs to operate your agency are divided into two - establishment and operational.

Having that in mind, establishment costs are the basic expenditures for your business needs even before you sign the lease to your office. The expenses can be:

  • Legal set-up (entity foundation, contracts, etc.)
  • Hardware (computers, telephone, etc.)
  • Software (HR, accounting, payroll, testing, training, etc.)
  • Office space
  • Insurance

On the other hand, operating costs are the charges you incur to maintain and run your business daily or monthly. These expenses include office rent, utilities, supplies, and employees’ salaries.

Thus, once you have figured out what you need for your business, it will be easier for you to estimate and create a realistic budget.

4. Understand laws and regulations

Speaking of expenses, this next step involves the legal aspect of your business. You might need to consult a lawyer to ensure that your chosen business name is not trademarked before registering your business. Additionally, you need legal assistance with your taxes, permits, and license. 

Each country has its own policies depending on where you plan to operate in the world. Hence, do your due diligence carefully, or better yet, hire experts to do it for you.

5. Be aware of the agency’s cash flow

Now that you are well informed that starting a recruitment agency requires a huge capital investment, you need to be aware of the firm’s cash flow through and through. 

In this part, we will discuss how you can charge your clients and establish commission payment structures for your recruiters.

How Can You Charge Your Clients

As a business, you need to familiarize yourself with how you can charge your clients and the fee structures to gain profits and ultimately achieve your business goals. In general, there are three recruitment fees depending on your focus:

  1. Temporary new hire fees
  2. Temporary to permanent new hire fees
  3. Permanent new hire fees
Temporary New Hire Fees

In this structure, you, as a hiring agency, will pay the new hire their salary. Still, you can invoice your client a fee to cover the costs. The fee can consist of the temp’s hourly or daily rates and other compensation plans (which you can markup for profit), such as public holiday pay, sick leave, health insurance, and more. However, there is no rule of how much percentage you can charge as it depends on your clients’ sector and location. 

Temporary to Permanent New Hire Fees

When a new hire performs well, and your client decides to hire them as permanent staff, they can do so, for a fee, of course. This is because you technically hire the temporary worker, so if your clients want to accept the new hire as their permanent worker, they would have to pay you a transfer fee.

Permanent New Hire Fees

The third structure is based on the contingency and retainer fees (both of which we will discuss later). Typically, you would charge your clients after a candidate accepted an offer letter from them. The amount is based on an agreed-upon percentage of a position’s yearly salary. Meanwhile, if a position your clients want to fill requires specific skills, they can pay an upfront guarantee fee or retainer fee. 

Recruiters’ Commission Structures

Now that we have covered how you can charge your clients, the next is to familiarize yourself with how a recruiter’s commission structure works.

Typically most recruiters are paid commissions based on a new hire’s first year salary. However, if an agency does pay them in wages, according to Indeed, in that case, the average base salary for a junior recruiter is USD46,372 per annum with common benefits like 401(k), paid time off, paid training, and many more. 

Contingency Fee Structure

Now, regarding their commission, there are different commission or fee structures that you can use for your agency. First, you have the contingency fee structure where a recruiter only gets paid until they have successfully recruited a job seeker for a client. Generally, the commission range can be between 15% to 25% of the first-year package of a new hire.

Retainer Fee Structure

The second fee structure is called retained fee structure. This applies when a client is looking for candidates with specific skills and experience. Unlike the above structure, they pay an agency a retainer fee throughout the process in three different stages - upfront, upon receiving a shortlist of candidates, and on successful placement.

Container Fee Structure

On the other hand, there’s a fee structure that is a mixture of both commission structures mentioned above, called a container fee. The way you invoice clients is quite the same as the contingency fee structure. The commission for your recruiters is based on a new hire’s salary. To illustrate, let’s assume the yearly salary of a position that your client wants to fill is USD100,000, and the commission is 15%. This means your recruiters will receive the payment twice. They receive USD15,000 as an engagement fee. Then, when your client decides to hire a candidate, and the new hire stays with them for a period of time, your recruiters will receive the second of USD15,000.

After looking at how an agency gains profits and how recruiters are paid, as a successful entrepreneur, you must ensure that there are no payment delays to have a positive cash flow.

6. Invest in technology

As mentioned before, you need to create an establishment cost budget that includes software like HRIS or recruitment technology. Even though you are at the beginning of your business journey, it is best to start investing in a good recruitment platform like an applicant tracking system (ATS) or customer relationship management (CRM). This is to make sure that you can operate smoothly.

On that note, an all-in-one recruitment software like Manatal can be a good choice for you. Using our ATS tool allows you to manage your hiring process smoothly. Meanwhile, our built-in CRM ensures seamless collaboration between you and your clients.

Learn more on how to start your recruitment agency here 

Part 2: Starting Your Hiring Agency In Different Countries 

Now that we have covered the fundamentals you need to master before and during your journey to starting a hiring agency, let’s dive into what you need to know to set up a firm in different countries like the United States, the United Kingdom, Spain, and India.

US Employers Added More Jobs

According to the Bureau of Labor Statistics, US employers added 263,000 jobs in September 2022 - more than what experts predicted which was 250,000. The report further highlights that the leisure and hospitality business saw the most significant job increase, adding 83,000 positions. Professional and business services, which had gains of 60,000 and 46,000 employment, respectively, were closely followed by health care. 

Click here to learn more about the steps you should take to start a recruitment agency in the United States.

High Demand For Technology-Related Jobs In the UK

When choosing which niche you want to focus on before starting your hiring agency, you would be happy to know that there are demands for talent in all industries. As an illustration, since the United Kingdom voted to leave the European Union in 2016, healthcare professionals have increased demand for jobs to accommodate the changes and their aging population. 

Additionally, due to rapid digital transformation, you can expect demand for tech talents to continue in 2023. With that in mind, positions that are related to technology are also in high demand, including data engineer and back-end developer.

Click here if you’re planning to open up a recruitment firm in the United Kingdom.

Spain’s Labor Market Remains Attractive For Foreign Employers and Workers

Moving to its neighboring country, Spain, its labor market is highlighted with overlap trends with dynamic and economic factors. The efficacy and efficiency of employee work, as well as how goods and services can be delivered to customers, are fundamentally altering as a result of digitalization across industries.

A consequence of this trend is the creation of new jobs requiring workers with different skill sets. Additionally, as companies transfer their workloads to the cloud, more and more tasks can be completed remotely. This is true for professionals in the recruitment industry and the business world at large.   

In the Spanish market, these trends are being introduced into a society marked by high unemployment compared to its peers in the European Union. According to the European Commission, “an aging population, high unemployment (highest among young people), long-term unemployment, the reported temporary nature of the work, and the strong concentration of small and medium-sized enterprises” are the country’s key challenges. Despite this challenge, Spain remains an attractive economic market for international employers and job seekers.

Ready to take your recruitment agency in Spain off the ground? Click here to learn the steps.

India - The Most Attractive Staffing Market In The World

Moving on to the next country, which is India, the Staffing Industry Analysts deems the country as the most attractive staffing market in the world. The second-most populated nation still has a huge unrealized potential for growth, and as COVID limitations have loosened, the market has quickly recovered.

Employers require additional recruiters to fill open positions as the Indian market recovers. In India, homegrown firms that cater to both regional and national needs coexist with foreign firms like Adecco, Michael Page, and Randstad. Identifying your agency's capabilities will soon be essential to the firm's long-term survival in a dynamic and rapidly expanding market.

Find out what steps you need to take in starting a recruitment firm in India here.

Part 3: Source And Manage Applicants With ATS

After reading what each job market in different countries looks like, the competition for candidates continues to be aggressive. In order to stay ahead of your competitors, you need to invest in a good applicant tracking system (ATS).

To illustrate, when your hiring agency is doing well with more clients and listings, soon it’ll be challenging to manage them manually. Additionally, your recruiters could risk overlooking qualified candidates for open positions. For this reason, monitoring, tracking, and finding applicants is easier with a cloud-based ATS. Automated screening and scoring features enable recruiters to locate the ideal candidate for a position quickly.

That being said, implementing an ATS is a wise step to manage massive volumes of candidate and client information. Additionally, to successfully scale operations, and beat your competition, whether you are just starting your headhunting firm or are trying to expand your business.

Read more about the benefits of ATS for your agency here.

Part 4: Setting Up Recruitment CRM

This next recruitment technology refers to a tool that allows staffing companies and agencies to manage their leads, clients, and customers. To increase sales and productivity, it aids hiring managers and recruiters in organizing data, storing interactions, and improving communication.

Additionally, this software offers insightful data that lays the foundation for more effective tactics and enhanced client communication. It often provides in-depth analytics and reports that aid in building wholesome relationships and achieving the greatest outcomes.

Learn how to set up your recruitment CRM here.

Part 5: Use Your Recruitment CRM To Its Fullest

After setting up your recruitment CRM, you need to know how to use it to its fullest potential. This is because there is a rise in jobs waiting to be filled with qualified talents, making in-house hiring professionals turn to hiring agencies for help. 

The latest survey by Staffing Hub concurs with the statement highlighting that about 70% of hiring firms predicted their business would grow by 11% or more in 2021.

Additionally, agencies can source candidates for businesses faster thanks to access to more qualified prospects. The demand for top talent and increased HR duties are other factors driving the growth of the recruitment sector.

Learn how to use your CRM to its fullest here.

Take The First Step

After looking at the steps and knowing what to expect in the recruitment industry, it’s safe to say that starting a recruitment agency can be a difficult task.

All you need to have is clear goals and objectives and stay focused on your endeavor. Also, having a partner like Manatal who can help you with your recruiters' daily tasks, like managing leads, clients, and candidates while achieving business goals, is a good idea.

Signup for our 14-day free trial and book a demo call with one of our experts today.

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