In terms of revenue, the global human resources (HR) and recruitment services industry has a market size of $761.6 billion as of 2023. For such a large figure, you’re possibly curious about where all this revenue comes from.
That begs the question: how do recruitment agencies make money?
It turns out it’s not as complicated as you might think. Recruitment agencies typically charge companies a percentage of a new hire’s first-year salary, often around 10%–30%, but it can be as high as 75% for temporary placements.
The good news is you can also get in on this action when you sign up as a franchise recruiter to our Recruiter Startup model. With remote work on the rise, it’s easier than ever to launch your home-based recruitment agency desk and match great candidates with suitable positions/vacancies at excellent companies.
This guide examines the various ways recruitment agencies generate income which could come in handy for those seeking to start a recruitment agency.This guide examines the various ways recruitment agencies generate income which could come in handy for those seeking to start a recruitment agency. Additionally, partnering with an SEO agency can help boost your online visibility and attract more clients to your recruitment services.
Recruitment Placement Fees: The Lion’s Share of Profits
Placement fees are one of the major profit models for recruitment agencies — this is where the bulk of your profits will come from. For each candidate you match with a new position, you charge the hiring company a percentage of their starting salary, typically around 10%–30%.
For example, if you place a candidate in a £100,000 per year position, you could charge £10,000 or more for your services. Not too shabby, right?
You can build your recruitment agency as a solopreneur working from home using a platform like Recruiter Startup. Following the allocation of vacancies/leads, you source the candidates, do the matchmaking, and earn the most significant cut (80%–90%) of the placement fees.
Recruiter Startup provides you with the tools and training to get started and a steady stream of new vacancies/jobs to work on so you can focus on making placements. What’s more, you eliminate the enormous recruitment agency startup costs, the need to source recruitment startup funding, or even write a recruitment agency business plan.
With time and practice, you can scale up to a multi-person agency, but you’ll always get the best margins by keeping your overheads low. A highly scalable recruitment desk business can generate over £1 million in annual profits. And the best part is, you can do it all from your home office!
Temporary Placements: A Steady Stream of Income
Temporary placement is one of the major recruitment agency revenue streams where agencies charge clients a percentage of the temporary worker’s hourly rate or salary. This fee is typically lower than that of permanent placements but can still add up quickly, especially if the agency handles a large volume of temporary assignments.
- Companies often require temporary placements to cover short-term staffing needs, such as maternity leave, seasonal fluctuations, or special projects.
- These assignments can range from a few days to several months or even years.
- Recruitment agencies act as intermediaries, matching qualified temporary workers with companies needing immediate staffing solutions.
Despite the low rates, successful temporary placements can lead to repeat business from clients who rely on agency support for their temporary staffing needs.
Permanent Placements: Lucrative Long-Term Partnerships
While temporary placements provide a steady income stream, permanent placements often yield the highest financial rewards for recruitment agencies. Permanent placements involve finding the right candidate to fill a full-time position within a company, and the fees charged for these placements are typically higher than those for temporary assignments.
- When a recruitment agency successfully matches a candidate with a company for a permanent position, they charge the client a percentage of the candidate’s first-year salary.
- This fee structure incentivises agencies to find highly qualified candidates likely to remain with the company long-term, ensuring a mutually beneficial partnership.
- The percentage charged for permanent placements can vary depending on factors such as the seniority of the role, industry norms, and market demand.
Generally, the fees for permanent placements are higher than those for temporary placements due to the long-term commitment involved.
Value-Added Services: Boosting Recruitment Agency Income
Once you’ve established a steady stream of placements and built up your client base, you can raise your recruitment agency’s income.
One of the best ways recruitment agencies generate income is by offering value-added services. These are extra services beyond just finding candidates that provide more value to your clients, and they include the following:
- Candidate screening
- Skills testing
- Recruitment training
- Retainer agreements
- Candidate Screening
For an extra fee, you can pre-screen candidates for your clients to save them time. This includes checking references, verifying credentials, and conducting phone interviews. Charge clients a percentage of the candidate’s first-year salary for this service.
- Skills Testing
You can also offer to test candidates on critical skills needed for the role. For technical positions, this could include coding tests, design exercises, or other job-specific assessments; for soft skills, consider personality and aptitude tests. Skills testing allows you to present the most qualified candidates to your clients, for which you may bill hourly or per test.
- Recruitment Training
Many companies outsource their recruitment to focus on their core business. You can provide recruitment training for their in-house teams to help them improve their hiring processes. Offer workshops on topics like writing better job ads, using social media for sourcing, and conducting compelling interviews to establish yourself as an expert in the industry.
- Retainer Agreements
For crucial clients, consider offering a retainer agreement where they pay a fixed monthly or quarterly fee for a certain number of hires or hours of recruitment services. This ensures predictable income for your agency and priority service for the client. However, note that retainer fees often include a discount over your standard placement fees.
You can significantly boost your recruitment agency’s income and profits with the right mix of value-added services that complement your core placement offerings. Keep tweaking and improving your services, and the money will follow!
Contingency vs Retainer: Choosing the Best Model
Regarding the financial aspects of recruitment agencies, you have two main options: contingency or retainer. Choosing the suitable model for your agency depends on your risk tolerance and how much control you want over the recruitment process.
Let’s examine how each model operates below and their perks and downsides in each case.
The contingency model is a no-win, no-fee model — you don’t get paid unless you successfully place a candidate. This means you take on more risk but also have the potential for higher rewards if you make a placement.
Many new recruitment agencies start with the contingency model since there are low barriers to entry. You can cast a wide net to find new clients and candidates without high upfront costs.
- Low risk, high potential reward.
- Easy to get started.
- Unpredictable income.
- Lots of unpaid time sourcing candidates.
- Clients can switch agencies easily.
With a retainer model, clients pay an upfront fee to “retain” their services for a fixed period. This provides a more stable income, but there’s also a higher risk in cases where you don’t make a successful placement. The retainer model typically requires an established reputation and track record of success.
- Predictable income from retainer fees.
- More control over the recruitment process.
- Stronger client relationships.
- Higher risk if you don’t make a placement.
- More challenging to attract new clients.
- Significant time is required to source high-quality candidates.
Which Model Should You Opt for?
You need to go with what you’re comfortable with. If you want stability, start with a retainer model; if you want flexibility, go for contingency. You can also offer a hybrid model with lower retainer fees and higher contingency placement fees to find the right balance for your agency.
Your chosen model will ultimately depend on your risk tolerance, experience, and goals. However, with the right strategy and support, either model can be viable for establishing reliable recruitment agency revenue streams and building a successful business overall. Consider partnering with an seo agency to enhance your online presence and attract more clients to your recruitment services.
5 Steps to Setting Up Your Own Profitable Recruitment Desk
Setting up your recruitment desk as a franchise recruiter with Recruiter Startup is a great way to earn money from home. For one, you get to keep the lion’s share of the profits from every successful placement.
Here’s an outline of five key steps to help you build your remote recruitment desk:
- Find your niche.
- Build your network.
- Market your services.
- Source top talent.
- Negotiate the best deals.
Step #1: Find your niche.
Focus on a specific industry or job role that you have experience in. This will allow you to leverage your knowledge and network to find the best candidates and clients.
Some popular areas include:
- IT and tech
- Sales and marketing
Step #2: Build your network.
Start connecting with people in your target niche. Reach out to former colleagues, join relevant LinkedIn groups, and participate in industry forums and communities. Let people know you’re now recruiting for that field — these connections will lead to new opportunities.
Step #3: Market your services.
Promote your recruitment services to companies in your niche.
You can do the following:
- Contact HR managers and business owners directly.
- Post on LinkedIn and industry job boards.
- Run ads on social media.
- Sponsor relevant podcasts, newsletters, and events.
Step #4: Source top talent.
Use your network and online job boards to find qualified candidates. Screen them thoroughly to ensure the best match for your clients’ needs. Present only the most suitable candidates to your clients. At Recruiter Startup, we guarantee three live leads/vacancies per month with the potential for more.
Step #5: Negotiate the best deals.
Work with your clients to determine a fair recruitment fee for each successful hire. You’ll earn a percentage of the final fee (usually 80%–90%). The more experience you gain, the better you’ll get at negotiating deals that work for both parties.
With hard work and persistence, you can build up a roster of loyal clients and a pipeline of strong candidates in your niche. Recruiter Startup provides the tools and support to help you set up and grow your profitable recruitment desk from home. So, why not give it a try?
Frequently Asked Questions
How much do recruitment agencies make?
Recruiters typically make between 10% and 20% of a candidate’s first annual salary as their fee for successfully filling a position. For challenging-to-fill positions, the fee can go up to 30% or higher. So, if a recruiter helps to fill a position with an annual salary of £100,000, they should earn anywhere between £10,000 to £30,000.
Do recruiters actually make a lot of money?
Recruiters have the potential to earn a significant income, but the actual amount varies based on several factors, including:
- Commission-based earnings: Recruiters often receive a percentage fee based on the candidate’s salary, which can result in substantial earnings for successful placements.
- High-demand industries: Certain industries, such as technology, finance, and healthcare, often require specialised talent, leading to higher fees for recruiters who can source and place qualified candidates.
- Executive search and niche markets: Recruiting for executive-level positions or specialised niches can command higher fees due to the expertise and effort required.
- Repeat business: Establishing solid relationships with clients can lead to repeat business and referrals, increasing the number of placements and potential earnings.
- Contract and temporary placements: Recruiters specialising in contract or temporary placements can benefit from continuous placements and more opportunities.
What type of recruitment makes the most money?
Executive or senior-level recruitment tends to be the type of recruitment that makes the most money. These positions often come with higher salaries, which means the placement fees for executive recruitment can be significantly higher than other recruitment types.
Wrapping It Up
So there you have it, a comprehensive answer to the question: “How do recruitment agencies make money?”
The good news is, you can get in on the action too. With the right tools and know-how, you can launch your recruitment agency and earn big commissions. Recruiter Startup has everything you need to hit the ground running — applicant tracking software, recruiting tools, training, and more.
Why work to line someone else’s pockets when you can build your own recruitment empire?
The potential to earn is enormous if you’re willing to put in the effort. Stop dreaming and start doing — set up your remote recruitment desk today and watch the commission roll in. Before you know it, you’ll be raking in money that most people only dream about. Don’t hesitate to contact us for more information on how our recruitment franchise system operates.