How to start a recruitment business: 5 simple steps
With millennials tendency to jump from job to job bolstering the industry, read on to find out if you’re the right candidate to start a recruitment business…
They say ‘looking for a job is a full-time job’ and for anyone who’s made a big career change, they’d surely empathise with the sentiment.
Job hunting on your own is time-consuming, stressful and often demoralising – but it’s also necessary for career progression, especially as millennials continue to move from job to job far more frequently than previous generations. And that’s where recruiters can offer a much-needed helping hand.
With over 8,000 recruitment businesses successfully operating in the UK and an industry worth over £26bn, it’s little wonder then why so many people see recruitment as a viable business proposition. Not only is there a clear demand, but it’s also potentially a very lucrative industry, with fairly limited setup costs.
However, it’s not for the average pencil pusher – as long hours, a great sales technique and a good business model is required to ensure you survive in an increasingly busy marketplace.
These are the key things to know about when starting a recruitment agency:
1. Be prepared for hard graft
While you can make quite a lot of money from a successful recruitment business, it’s worth remembering that there’s no such thing as a free lunch.
It may be worth considering seeing if you can get a Start Up Loan (external partner site, link opens in a new tab) to help you with financing, and mentoring to start this business idea. You'll also need to think about registering your business, either as a sole trader or as a company - if a company, then Smarta Formations (external partner site, link opens in a new tab) are an organisation that can help you set up.
Due to the fact you’ll often be dealing with people who themselves will be working, you’ll have to work longer hours in order to accommodate them and provide them a worthwhile service, so don’t expect to be clocking off at 5.30 everyday!
Even if you fail to find your candidate a role, they and the employer will remember you if you can at least provide a focused and lengthy service. They may even recommend you to their friends and business partners.
Aside from all the regular entrepreneurial traits required to start your own business, the most important skill to have in order to make your recruitment business successful is sales – because in recruitment, you are selling your candidate to the employer.
Make sure you always meet your candidate face to face and inspect their CV meticulously before pitching them to a recruiter.
You want to gain a reputation for supplying the best candidates, so being seen to be attempting to offload anyone will earn you a reputation of being dishonest and even underhanded.
However, recruitment is unlike any traditional sales role, so remind yourself the importance of the situation. You’ll be dealing every day with people’s livelihoods and careers, so make sure to respect that.
2. Choose your recruitment business model and pricing wisely
While the traditional agency model of a high-street shop front still exist, low-cost online start-ups are beginning to take up a larger proportion of the industry.
Both have their advantages, but it depends on which industry you’re looking to recruit into, and the amount of cash you’ll have upfront.
While a typical, generic high street agency has the benefit of attracting people walking by and looking for work, other industries, such as the media, are so digitally focused a physical presence may be unnecessary. You’ll need to work out your target market and what will be important to them.
With regards to pricing, generally recruitment agencies will either charge their fee via commission or just by a flat rate.
The rate of commission correlates with the successful candidate’s salary and is worked out using a percentage. For example, a more junior role might start in the region of 9 or 10% of the annual salary, so for a £10,000 a year role, a client may pay £1,000.
From then on, the fees work a bit like taxation. As the salary increases, so too does the percentage. For roles up to £15,000 you will typically pay 13 to 15%; up to £20,000 is around the 17 to 18% mark, and in excess of £20,000 you are likely to be charged 20% to 25% i.e. £4,000 upwards. High-end niche or specialist recruitment agencies and executive search consultants can charge 30% or more for jobs attracting six or seven-figure salaries.
Most people are familiar with the notion of paying recruiters commission, but it’s by no means cheap and if you’re looking to target small businesses, for instance, it may put them off using you. For that reason, a lot of new recruitment firms promise a low-cost, flat-rate fee.
A flat rate fee is a one-off payment, which fluctuates pending on the conditions of the agreement between the recruitment agency and the client. While the appeal to a client is obvious, if you do choose to start an agency on a fee-basis, you’ll need to make sure the costs will work for your business. It’s likely you’ll need to place a higher volume of candidates than if you operate a commission-model.
3. Find a niche for your recruitment agency
One of the most important elements in starting a business is identifying your target audience. In what can only be described as a saturated market, it’s essential that you offer a unique recruitment service that sets you apart from big competitors.
Think about any particular unexploited industries or regions you could potentially hone in on. With today’s technologically connected world, you can recruit people hundreds of miles away online meaning geography is no longer an issue.
ForceSelect specialise in recruitment for former and outgoing members of the armed services, GPS Locums matches NHS hospitals with locum (temporary) medical staff, while We Connect Students provides employers with a searchable database of students who are looking for work.
Consider picking one industry and sticking to it, as too broad of an appeal will mean you could be competing against too many players.
4. Consider franchising
If you have a bit more to spend on a new business, you could consider becoming part of an established recruitment company by becoming a franchisee. ‘Recruitment in a box’ may prove to be a much more expensive initial investment, rather than founding your own company, but it does come with a host of benefits.
Not only will it help you get your business off the ground, but it will also provide you with marketing materials, advertising, and software, and, having already built up a respected profile, may have already established a relationship with businesses and candidates.
Recruitment franchisee opportunities will normally require an initial investment of at least £24,000.
Visit out dedicated franchise directory to find out more about what’s available and how the process works.
5. Keep on top of rules and recruitment regulations
While there is no actual official requirement for any training or qualifications to set up your own recruitment agency, if you’re coming from an outside industry its highly recommended you at least attend a few training courses.
These should, at the very least, help you to familiarise yourself with the need-to-know rules and regulations of the recruitment industry such as what information you are and are not allowed to give the candidate and the hirer, as well as issues around anti-discrimination, holiday pay, and so on.
The Recruitment & Employment Confederation (REC) offers training at all levels, from a one-day workshop in business planning to a degree in recruitment practice. Areas covered include an A to Z of training, sales and marketing, legal training and leadership.
While availing of such training courses is optional, your recruitment business must comply with the Employment Agencies Act 1973.
The act covers what you can and can’t charge for, what information you can disclose to clients, how to advertise and how to deal with someone below the age of 18 among other things.
Other regulations governing the industry include the Employment Businesses Regulations 2003. This puts an emphasis on the differences between an employment agency, which introduces workers to a ‘user’ or client who then enters into a contract with the worker, and an employment business, which enters into a direct contract with the worker and then contracts them out to employers.
You can also view our complete guide on how to start a recruitment business.