Recruiting Agency Business Overview

Recruiting agencies serve as intermediaries in the job market, working with both employers and job seekers to fill open positions. These agencies handle various aspects of the hiring process, including sourcing candidates, screening resumes, conducting preliminary interviews, checking references, and presenting qualified candidates to employers.

Some agencies choose to focus on specific job levels, ranging from entry-level positions to C-suite executives, while others offer placement services across all employment levels.

• Direct Hire Placement: Agencies match candidates with companies for permanent positions, receiving a fee upon successful placement
• Executive Search: Agencies focus on filling high-level management and executive roles for organizations
• Temporary Staffing: Agencies provide workers for short-term positions or project-based work
• Contract Placement: Agencies place independent contractors with businesses for specific projects or timeframes

Related: Checklist To Start A Business

How Do Recruiting Agencies Make Money?

The primary way recruiting agencies generate revenue is through placement fees paid by employers. When an agency successfully places a candidate in a position, the hiring company pays a fee calculated as a percentage of the new employee’s first-year salary. This percentage-based model means agencies earn more when placing candidates in higher-paying positions. Most agencies require payment only after a successful placement, though some may request partial payment upfront. The fee structure encourages agencies to find qualified candidates who will accept the position and remain with the company through any guarantee period the agency offers.

The revenue streams most recruiting agencies utilize can include:

• Permanent Placement Fees: Companies pay a percentage of the hired candidate’s first-year salary, typically 15-25%.
• Temporary Staffing Revenue: Agencies bill clients an hourly rate for temporary workers, which includes the worker’s wages plus a markup for the agency’s services.
• Executive Search Retainers: Companies pay upfront fees to begin executive searches, followed by additional payments when milestones are met during the search process.
• Contract Placement Fees: Agencies receive ongoing payments based on a percentage of the contractor’s hourly rate throughout the contract duration.
• Consulting Services: Agencies charge fees for workforce planning, salary surveys, and recruitment strategy development.
• Resume Writing: Some agencies offer professional resume writing services to job seekers for a flat fee.
• Assessment Services: Companies pay for candidate screening, skills testing, and background verification services.

Industry Statistics

Recruiting agencies operate under NAICS code 561311: Employment Placement Agencies, which includes businesses that list employment openings and place applicants in permanent positions.

Here are some statistics that show what’s happening in the recruiting agency industry:

Recruiting Agency Industry Size & Growth: The recruiting agency industry generated $33.1 billion in revenue last year. Over the past five years, the industry saw a projected annual growth of 3.0%, and future growth will also likely be moderate as interest rates stabilize and companies adjust their hiring practices (IBISWorld).

Number of Recruiting Agencies: There are 22,778 recruiting agencies operating across the country. The largest companies include Allegis Group, with $2.97 billion in revenue; LinkedIn, with $2.42 billion in revenue; and Randstad, with $1.20 billion in revenue. These three companies represent significant market share, with Allegis Group being the largest player, though the industry is mostly small, locally-owned firms (IBISWorld).

Recruiting Agency Profit Margin: The industry maintains varying profit margins depending on the business model and services offered. The average industry net profit margin is around 10%, though companies focusing on executive placement typically earn higher margins.

Costs To Start a Recruiting Agency

Starting a recruiting agency typically costs between $4,000 and $25,000, depending on the size and scope of operations. There are several expenses to consider when starting a recruiting agency. Here are some of the most common startup costs:

Office Space and Setup: A physical office location can range from $1,500 to $5,000 per month, depending on location and size. This includes rent, utilities, furniture, and basic office equipment like computers and phones. However, many recruiting agencies start from home to minimize initial costs.

Software and Technology: Applicant tracking systems, customer relationship management software, and job board subscriptions typically cost between $1,000 and $3,000 for initial setup plus monthly subscription fees. These tools help manage candidate databases, track placements, and access job postings.

Professional Insurance: Business liability insurance and errors and omissions coverage generally run between $500 and $2,000 annually. This protects against potential claims from both clients and candidates.

Training and Certifications: Professional recruiting certifications and initial training programs range from $500 to $2,500. While not required, these credentials can help establish credibility with clients and candidates.

These estimates provide a general idea of startup costs, but actual expenses will vary. Costs depend on factors such as location, business size, and services offered.