If you’re reading this post, you’re likely considering starting a recruitment agency. However, one troubling question has got you pondering and possibly hesitant: “Are recruitment agencies profitable?”
You’ve heard they can be pretty profitable, but you’re not sure if that’s really true or just hype. We’re pleased to inform you that recruitment agencies can be lucrative — if you set up and run them the right way.
If that sounds good, keep reading as we explore the profitability profile of recruitment agencies and how you can increase your profit margins even further when you set up a remote franchise recruitment desk with Recruiter Startup.
How the Booming Nature of the Recruitment Industry Increases Profitability
The recruitment industry is booming, and for good reasons. As companies grow, the need for qualified candidates increases. This demand has created a hugely profitable opportunity for recruitment agencies and recruiters.
- In November 2022 alone, jobs posted increased by 17% compared to October 2022, while job applications surged by 39% over the 2021 monthly average.
- In terms of revenue, the global human resources (HR) and recruitment services industry is worth $761.6 billion in 2023 and is forecast to grow by 1.4% yearly.
The rapidly expanding nature of the recruitment field implies increased financial viability for recruitment firms. According to recent reports, the average salary for recruiters in the UK is over £30,000 per year. However, note that experienced recruiters and those who own their agency or partner with a recruitment agency franchise can make well into the six figures.
While some agencies take a large portion of the placement fee, when you partner as an associate with Recruiter Startup, you keep the lion’s share (80%–90%) of the profits. We provide all the tools and training you need to build your successful recruitment agency right from home.
Our cloud-based platform gives you everything required to source, screen, and place top talent. You can grow your agency as big as you want with no limits or caps on your earning potential, and our associates’ testimonies prove our prowess.
Although the work requires effort and time to build up, the rewards are well worth it. If you have a knack for networking, sourcing great candidates, and making the perfect match between job openings and talent, recruitment could be an ideal and lucrative career path for you. With the right tools and support, you can build a thriving recruitment agency and reap the financial benefits.
Profit Margins in the Recruitment Industry
As a recruitment agency, your profits come from the placement fees you charge clients. The good news is the increased demand for talent means a more substantial profit margin.
Let’s examine some crucial stats and facts below in this regard:
- According to a recent survey, about 69% of companies struggle to find qualified candidates. This talent shortage gives recruitment agencies a lot of leverage when charging placement fees. You can quickly charge 15%–25% of the candidate’s first-year salary.
- The recruitment industry continues to grow year after year. More companies are outsourcing their hiring to focus on their core business. This trend has fueled the growth of recruitment agencies, with a projected 9.2% increase in revenues between 2022 and 2029.
- With a suitable business model, recruitment agencies can be highly lucrative. At Recruiter Startup, you keep up to 90% of the placement fees you generate. We provide leads, training, and technology so you can get started quickly and scale your business.
- While setting up an agency does require time, money, and effort, the potential payoff is enormous. Top agencies generate several hundreds of thousands in annual profits. As an independent recruiter with Recruiter Startup, you can work from home and be your boss.
5 Types of Recruitment Models and Their Profitability
Knowing the different recruitment models is crucial to understanding profit margins in the recruitment industry, and we’ve discussed the key ones below.
In brief, the five types of recruitment models are:
- Contingency recruitment model
- Retained recruitment model
- Executive search model
- Contract staffing model
- Recruitment process outsourcing model
1. Contingency Recruitment Model
Contingency recruitment is one of the most common models in the industry. In this model, agencies are paid a fee only when the client hires a candidate they refer. The fee is typically a percentage of the candidate’s first-year salary, ranging from 10% to 30%.
The profitability of this model depends on the agency’s success rate in making successful placements and the volume of placements they can secure. Since agencies are paid on a contingency basis, a certain level of risk is involved if placements aren’t made.
2. Retained Recruitment Model
In the retained recruitment model, clients hire agencies exclusively to fill a specific position. The agency receives a retainer fee upfront to conduct a thorough search for qualified candidates, while the remaining fee is paid upon successful placement.
Retained recruitment tends to be more profitable than contingency because agencies are paid a portion of the fee regardless of the outcome. However, this model requires higher expertise and resources to deliver top-quality candidates.
3. Executive Search Model
An executive search model is a specialised form of retained recruitment focusing on high-level executive positions. This model is typically used for C-suite and senior executive roles where the talent pool is limited.
Executive search firms often charge a higher fee, ranging from 25% to 35% of the candidate’s first-year salary. The profitability of executive search depends on the agency’s ability to attract top-tier executive talent and successfully place them in prestigious positions.
4. Contract Staffing Model
The contract staffing model involves providing clients with temporary or contract workers to meet their immediate needs. Agencies in this model charge clients an hourly rate for the contracted workers’ services and pay the workers a portion of that rate as their salary.
The profitability of contract staffing depends on factors such as the markup percentage, the duration of contracts, and the volume of placements. Contract staffing can be lucrative if agencies can secure long-term contracts and manage a pool of high-demand skilled workers.
5. Recruitment Process Outsourcing (RPO) Model
RPO is a model where agencies handle the entire client recruitment process, acting as an extension of the client’s HR department. Agencies in this model are responsible for sourcing, screening, and hiring candidates on behalf of the client.
The profitability of RPO depends on the fee structure agreed upon with the client, which can be a fixed fee per hire or a monthly retainer. RPO can be highly profitable if agencies secure long-term contracts with multiple clients and optimise their recruitment processes.
It’s important to note that the profitability of recruitment agencies utilising each model can vary based on the agency’s reputation, industry specialisation, client base, and overall economic conditions. Successful agencies often combine multiple models to meet the specific needs of their clients.
Note: Understand that you need to ensure everything is in place for your business to run seamlessly before you can ensure profitability. Starting a recruitment agency does require a lot of commitment, which we’ll outline in the next section.
Time and Financial Viability of Recruitment Firms
Establishing a recruitment agency is no small feat — it requires a significant time and financial commitment to get off the ground. This is why many recruiters prefer to work based on a franchise model.
Major Costs to Consider
Here are the most important recruitment agency startup costs to apprise yourself of:
- Office space: Do you need a physical office? If so, commercial office space can cost thousands per month. For some, a home office is more affordable and may suffice.
- Staff: Even if you start as a one-person show, you’ll likely need to hire recruiters and administrative staff as your business grows. Salaries and benefits for employees can be an agency’s most significant expense.
- Technology: You’ll need a website, database, applicant tracking system, and various software to manage the business. The total cost of recruitment technology can easily reach tens of thousands of pounds per year.
- Marketing: To attract new clients and candidates, you must invest in marketing and advertising. Everything from your website and social media to print ads and sponsorships costs money.
Time Required to Establish the Business
Apart from the financial commitments required to set up a recruitment agency, you’ll need to devote ample time to the following activities:
- Developing a business plan: This includes determining your mission and vision, target market, operational details, and financial projections. Crafting a comprehensive recruitment agency business plan can take weeks or months.
- Setting up the legal entity: You’ll need to determine if you want to be a sole proprietor, partnership or corporation and handle all the necessary registrations and paperwork.
- Building your team: Hiring qualified recruiters and staff and training them to your standards and processes takes a significant time investment.
- Developing resources: Creating your website, job boards, marketing materials, candidate screening tools, and client/candidate databases requires much time and effort.
- Generating leads and placements: It can take months of pitching to new clients before you gain traction and make your first placements. For this reason, continuous marketing and networking is an ongoing time commitment.
Although recruitment agencies can be highly profitable, the path to success is long. To reap the rewards of ownership without the enormous risks, consider a business opportunity like Recruiter Startup. We provide the tools, training, and support to help you build a thriving recruitment desk to earn big commissions — you can obtain more info on how this works by contacting us.
Starting Strong With a Higher Profit Margin as a Franchise Recruiter
You want to ensure the financial viability of recruitment firms before getting started. By offering the following perks, Recruiter Startup is dedicated to ensuring the profitability of your work-from-home recruitment agency desk:
1. Lion’s Share of Placement Fees
With Recruiter Startup, you’ll earn a minimum of 80% of the commission on every placement. For example, if you bill £10,000, you’re entitled to at least £8,000. This is a huge chunk compared to other agencies, and the difference can quickly add up over time!
2. Lower Costs and Overhead
- You can work from home, eliminating office rent or overhead costs.
- Guaranteed leads are provided, so there’s no need to spend on marketing.
- Cloud-based technology and support are included, so there are fewer upfront technology costs.
3. Flexible Lifestyle
- Work from anywhere with an Internet connection.
- Set your hours and schedule.
- Take time off when you want without asking permission.
4. Guaranteed Leads/Vacancies
At Recruiter Startup, you’ll never have to worry about where your subsequent vacancies/leads will come from. We have several vacancies, ensuring you have a constant supply of new opportunities to work on — at least three in a month. Say goodbye to the feast or famine cycle that plagues most recruitment agencies.
5. Full Training and Support
Starting your recruitment agency is difficult and time-consuming. To circumvent this, Recruiter Startup provides all the training and tools you need to get up and running quickly.
Our comprehensive training program will teach you the following:
- How to source strong candidates
- Effective interviewing and screening techniques
- Placement fee negotiation strategies
We also offer ongoing accounting and legal support to help you build your business. Do you have a question about a job spec or candidate? Our experienced team is here to help whenever you need it.
Recruiter Startup offers recruiters the opportunity to build a highly profitable business. Our proven model has helped hundreds of recruiters find success and independence. If you’re ready to take control of your career, we’re here to help you every step of the way.
No Limitations: Build Your Business as Big as You Want
The recruitment industry offers unlimited growth potential, and with Recruiter Startup by your side, the sky is the starting point.
Here’s what we mean:
1. No Ceiling on Earnings
With Recruiter Startup, the potential to scale your recruitment agency is unlimited. We allow you to keep most fees and bonuses from each placement without restriction. This means the more placements you make, the more you earn.
You can also offer other value-added services—as outlined in our post on how recruitment agencies make money— to maximise profits. In essence, the profitability of recruitment agencies has no cap.
2. Build a Team to Increase Capacity
As your business expands, you’ll want to hire other recruiters and staff to help manage the workload. You can continue recruiting for your roles while building a team to increase the total number of placements — their success contributes to your success.
3. Open New Offices Nationwide
Consider expanding into new locations once you’ve established a solid client base and proven your model. Opening branch offices in other locations allows you to tap into new talent pools and client networks. Although you’ll need to invest in hiring qualified staff to run each new office, the potential for a more significant business footprint is enormous.
4. Diversify into New Niches
Don’t limit yourself to a single industry or job function — as you gain experience, look for opportunities to expand into new, related areas. Developing expertise in multiple complementary niches makes your agency more appealing to a broader range of clients. It also protects you from fluctuations or uncertainties in any single market.
5. Franchise the Model
For the most ambitious recruiters, franchising the business model offers a path to significant growth. Once you’ve perfected your recruiting process, you can sell the rights to your brand, training, and methodology to others looking to start their recruitment agencies.
As the franchisor, you’ll earn an upfront franchise fee and ongoing royalties from each franchisee. This allows for rapid expansion into new territories and exponential growth potential.
A recruitment agency with the right mindset and business model can ensure high profitability. The recommended way to start is as a franchise recruiter so that you can scale up quickly — submit your CV here to get started.
Frequently Asked Questions
Are Recruitment Agencies a Profitable Business?
Yes, recruitment agencies can be profitable businesses, but the amount of money they make can depend on factors such as the following:
- The size of the agency
- The industries they specialise in
- The demand for their services
- Their client base
- Their ability to attract and place qualified candidates.
- Economic conditions and market trends
What Is the Average Profit Margin for Recruiters?
According to Saffery Champness, temporary/contract placement recruiters have an average gross margin of 17.5% across all sectors, with some sectors having slightly higher values. The utilities & energy sector has the highest average profit margin among contingent permanent placement recruiters at 27% of the candidate’s salary. The media & marketing and accounting & finance sectors trail closely with 23% each.
So, are recruitment agencies profitable?
Yes, recruitment agencies can be highly profitable if you play your cards right.
While the traditional agency model involves a lot of time, money, and effort to get off the ground, the franchise model Recruiter Startup offers streamlines everything. You’ll be up and running quickly, paying a fraction of the costs and keeping most of the commission in your pocket.
If you’ve got the drive and determination, there’s no limit to how much you can achieve as a recruiter.
So, what are you waiting for? Take that first step and start your profitable remote recruitment agency desk today!