How to Start a Staffing Agency: A Comprehensive 2024 Guide

What is a staffing agency?

A staffing agency is a business that specializes in connecting jobseekers with employers looking to fill specific roles.

When a company has a vacancy, instead of advertising the position themselves, they may engage a staffing agency to manage the hiring process.

The agency will source candidates, handle applications, and often conduct initial interviews, presenting the company with a shortlist of potential hires.

For candidates, a staffing agency provides assistance in finding positions that match their skills and career aspirations. They can submit their resume to the agency, which will seek out suitable job openings on their behalf.

How do staffing agencies work

Their primary role is to match the right candidate with the right role. They ensure that the needs of both parties are effectively met.

The process of acquiring an employee through a staffing agency typically involves several key steps.

Note that different industries or role may need additional steps.

Here’s a general overview of a staffing agency process in 10 steps:

1. Client requirement analysis:

• Understanding needs: The agency works with the client company to understand the specific requirements for the open position, including skills, experience, and other relevant attributes.
• Contract agreement: The agency and the client agree on terms, including fees, responsibilities, and other particulars related to the hiring process.

2. Job posting and promotion:

• Creating job listings: The agency creates detailed job listings based on the client’s requirements.
• Promotion: The job listing is promoted through various channels, such as job boards, social media, and the agency’s own network to attract potential candidates.

3. Candidate sourcing and screening:

• Sourcing candidates: The agency identifies potential candidates through various sources like databases, networks, and job platforms.
• Screening: Applications are reviewed, and candidates are screened based on their skills, experience, and fit for the role.

4. Initial interviews and assessment:

• Conducting interviews: The agency conducts initial interviews to further assess the candidates’ suitability.
• Skill assessment: Depending on the role, candidates might undergo skill assessments or technical tests.

5. Shortlisting and client review:

• Creating a shortlist: The agency selects the most suitable candidates and creates a shortlist.
• Client review: The shortlisted candidates are presented to the client for review and further evaluation.

6. Client interviews and selection:

• Further interviews: The client conducts their own interviews with the shortlisted candidates.
• Selection: The client selects a candidate and communicates their choice to the staffing agency.

7. Job offer and onboarding:

• Job Offer: The agency extends a job offer to the selected candidate on behalf of the client.
• Onboarding assistance: The agency, depending on the company, may assist with the onboarding process, ensuring a smooth transition for the candidate into their new role.

8. Follow-up and feedback:

• Performance check: The agency may conduct follow-up checks with both the client and the candidate to ensure satisfaction on both ends.
• Feedback: The agency collects feedback to understand the efficacy of the recruitment process and make any necessary adjustments in the future.

9. Payment and Billing:

• Invoicing: The agency sends an invoice to the client for the recruitment services provided.
• Payment: Upon successful placement and depending on the agreement, the client pays the agency based on the agreed-upon fee structure.

10. Ongoing relationship management:

• Maintaining relationships: The agency maintains relationships with both the client and the candidate for future opportunities and placements.
• Continuous support: The agency may provide ongoing support to ensure the placement is successful and address any issues or concerns.

Starting your own staffing business

If you’re considering starting your own staffing agency, you’ll be stepping into a role that bridges the gap between employers and potential employees.

Your business will involve identifying skilled candidates, understanding their career goals, and matching them with companies that have corresponding needs.

It’s a business that requires strong networking, effective communication, and a keen understanding of various industries and job markets.

Your revenue will typically come from the employers, who pay a fee once a candidate you provided is successfully hired.

Thus, your dual role in a staffing company involves supporting individuals in their career journey and aiding companies in finding the right talent efficiently.

[Read also: How to Start Real Estate Business in 2023]

Key statistics on staffing agencies in 2024

Global Expenditure on Digital Transformation

Projected Growth in Investment: By 2026, it’s expected that global investment in digital transformation technologies and services will reach a staggering $3.4 trillion USD, highlighting the increasing importance of digital innovation for business competitiveness.

Rankings in Digital Competitiveness

• Denmark’s Digital Leadership: Currently, Denmark is recognized as the leading country in digital competitiveness, demonstrating the benefits of early and strategic adoption of digital technologies.
• Global Adoption of Cloud Technologies: Cloud extensions are a popular method for digital transformation worldwide, offering businesses enhanced flexibility and growth potential.

Evolution of the Workplace

Significant Market Expansion: The marketplace for transforming workplaces is predicted to grow considerably by 2030, reflecting the shift towards more digitally integrated and flexible work environments.

Focus on Artificial Intelligence Investment

Growing Budgets for AI: In recent years, a significant portion of businesses have been allocating more than 5% of their digital budgets to AI, with many planning to increase this investment in the coming years.

Economic Contributions of Digital Transformation

Impact on Global GDP: Digitally transformed businesses are expected to constitute over half of the global GDP by 2023, totaling approximately $53.3 trillion, with the majority of the world’s GDP becoming digitized.

The Increasing Need for Digital Skills

Rising Demand in the Job Market: Jobs requiring digital skills are becoming more prevalent, accounting for a significant percentage of online job postings in various countries.

Future Projections for 2024

Emphasis on Augmented Intelligence: Predictions for 2024 emphasize the growing influence of augmented intelligence (GenAI) in areas such as personalization, automation, and data-driven strategies.

Source: Staffing Industry Analysts, American Staffing Association.

9 types of staffing agencies

The staffing agency industry is a very broad one.

Therefore, as you plan to establish your own staffing firm, it’s crucial to examine various types of staffing companies. This will enable you to select the one that promises the highest profitability.

Later in this article, we will guide you through the essential steps to take when starting a staffing agency. But first, let’s take a closer look at the different types of staffing industry to help you navigate in the right direction.

1. Traditional employment agency

Traditional staffing firms serve multiple sectors and provide candidates for a variety of roles without specialising in a particular niche. They manage large databases of candidates and employers, facilitating cross-industry matches.

Pros: A broad client base and a wide range of job openings can provide steady business and revenue.

Cons: The lack of specialization may result in facing competition from niche agencies that offer specialized talent.

2. Contingency employment agencies

Operating on a “no win, no fee” model, these agencies are compensated only when a candidate they propose is successfully hired. They often manage multiple client assignments at once, presenting candidates to numerous employers.

Pros: The payment-on-success model can be attractive to clients, and working with multiple clients simultaneously can diversify revenue streams.

Cons: The pressure to fill positions quickly to secure payment may sometimes compromise the quality of placements.

3. Temporary staffing agency

These agencies supply temporary staff for short-term assignments, covering roles during employee absences, peak seasons, or specific projects. They manage contracts and payroll for temporary staff.

Pros: Consistent demand for temporary staff and the ability to place the same candidate in multiple assignments can ensure steady income.

Cons: Managing high turnover and ensuring a constant supply of available temporary workers can be challenging.

4. Direct hire employment agency

These agencies focus on sourcing candidates for permanent roles, often involving a thorough recruitment and selection process to ensure long-term fit.

Pros: Typically, direct hires involve higher placement fees and the potential for stable, long-term client relationships.

Cons: The recruitment process can be lengthy and resource-intensive, requiring thorough vetting and assessment.

5. Permanent placement employment agency

These agencies specialize in securing candidates for permanent positions, ensuring that both the employer’s and candidate’s long-term goals align.

Pros: Establishing successful long-term placements can build a strong reputation and foster ongoing client relationships.

Cons: The extensive vetting and matching process requires significant time and resources.

6. Recruitment process outsourcing (RPO)

RPO agencies manage the entire recruitment process on behalf of a client, acting as an extension of the client’s HR department.

Pros: Offering a comprehensive service can secure long-term contracts and consistent revenue.

Cons: Requires a substantial operational setup and expertise in managing end-to-end recruitment processes.

7. Specialized staffing agency

These agencies focus on a specific industry or role, offering deep expertise and a specialized talent pool.

Pros: Niche focus can attract specific clients and command higher fees.

Cons: Dependence on the health and demand of a specific sector.

8. International staffing agency

Facilitates placements across countries, navigating various international employment laws and practices.

Pros: Access to a global talent pool and international markets.

Cons: Complexity in managing varied employment laws and cultural practices.

9. Remote staffing agency

Specializes in placing remote workers, catering to the growing demand for remote positions across various sectors.

Pros: Meeting the rising demand for remote work and accessing a wide candidate pool.

Cons: Ensuring effective remote recruitment, onboarding, and management processes can be challenging.

Business benefit of starting your own staffing agency

Starting a staffing agency can offer a range of business benefits, especially if you have expertise in a particular industry or sector.

We created a list of potential benefits for you when starting a staffing agency.

High demand for staffing services

• Market relevance: Various industries require temporary or permanent staff, ensuring that staffing agencies are always in demand.
• Diverse clientele: You can serve multiple sectors, such as IT, healthcare, and finance, providing a wide range of opportunities.

Profitability

• Revenue streams: You can have multiple revenue streams, including earning commissions from placed candidates and charging clients for your services.
• Low overhead costs: Once established, staffing agencies can operate with relatively low overhead, potentially increasing profit margins.

Flexibility

• Business model adaptability: The ability to adapt your business model to cater to different industries and market changes.
• Remote possibilities: The possibility to manage many aspects of the business remotely or through virtual platforms.

Building networks

• Expanding connections: Establishing relationships with various businesses and professionals.
• Industry influence: The potential to become an influential player in the industries you serve by connecting businesses with top talent.

Contributing to career growth

• Enabling careers: Playing a pivotal role in helping individuals find jobs and build their careers.
• Skill development: Assisting individuals in identifying and developing their skills to meet market demands.

Economic contribution

• Supporting economies: Contributing to the economy by facilitating employment and supporting businesses in their growth.
• Reducing unemployment: Actively participating in reducing unemployment rates by connecting job seekers with relevant opportunities.

Technological advancements

• Leveraging technology: Utilizing advanced technologies like AI and data analytics to streamline recruitment processes and enhance service delivery.
• Digital presence: Establishing a strong online presence, making it easier to connect with clients and candidates globally.

Creating employment

• Job creation: Your agency will not only help others find jobs but also create employment within your own organization.
• Team development: Building a team that can contribute to the growth and success of your agency.

How to start a staffing agency in 10 steps

Step 1: Craft a solid business plan

Developing a comprehensive business plan plan is pivotal. Identify your niche, conduct thorough market analysis, and establish a clear financial plan. Define your services, competitors, target market, and unique selling propositions to position your agency effectively in the market.

Step 2: Navigate legal and compliance requirements

Ensure your agency is set up as a legal business entity by registering your own business and adhering to employment laws. Creating comprehensive contracts for clients and candidates from the outset will safeguard your agency from potential future legal challenges.

Step 3: Build a marketing strategy and a strong brand identity

Your agency’s name, logo, and overall branding should resonate with your target market and marketing strategy. Develop a professional website and employ a strategic marketing plan to enhance visibility and attract your initial set of clients and candidates.

Step 4: Choose the right staffing agency software

Selecting appropriate staffing software is crucial. Ensure it meets your agency’s needs and can scale as your business grows. Also, evaluate options based on features like candidate tracking, job order management, and reporting capabilities.

Choosing the right software is a challenging task. You can select from out-of-the-box tools and custom solutions. Each scenario has its pros and cons. Out-of-the-box solutions requires a quick implementation and are cost-effective since they usually have user-based pricing and are ready to use. However, ready-made solutions impose some limitations when it comes to personalization, which is crucial for this kind of business.

On the other hand, custom software solutions take more time to develop but are tailored to your specific needs, scale as your business grows and give you full control and ownership of the software, including data management.

There is a third option to consider, which combines the advantages of ready-made solutions and custom software development.

You can build custom staffing agency software with a fast development service offered by some custom development companies. Thanks to low-code elements, you can speed up the development process, which also means saving money.

The biggest benefits of this solution are:

• Unlimited personalization features;
• Standing out and gaining a huge competitive advantage;
• Code ownership;
• Cost-effectiveness;
• A fast development process.

Learn more about the potential of rapid software development. Schedule your free consultation call today and let us navigate you through our innovative fast software development services.

Here are the key features to look for when choosing staffing agency software:

Customization

Allows staffing agencies to tailor the software according to their unique needs and operational workflows. This adaptability not only enhances user experience but also ensures that dashboards, reports, and interfaces are tailored to provide maximum usability and efficiency for your team.

AI-driven features

In 2023, introducing a layer of intelligent functionality is a must for every kind of application. AI can, for example, enable the software to adeptly match candidates with suitable job opportunities and utilize predictive analytics to forecast hiring and HR trends.

This AI integration not only streamlines the recruitment process but also provides valuable insights to inform strategic decision-making.

High-performance

In staffing agency software ensures that operations are conducted swiftly and reliably, enhancing user experience and ensuring operational efficiency.

The emphasis is on ensuring that the software consistently performs optimally, minimizing downtime and avoiding disruptions in agency workflows.

Automation and custom workflow

Capabilities enable the staffing agency to automate repetitive tasks, such as communication and scheduling, while also allowing the customization of workflows.

This ensures a streamlined approach to recruitment and client management processes, saving time and reducing the scope for error.

Reporting and analytics

Features provide data-driven insights by generating advanced reports that analyze various metrics, including performance and client retention. These analytical data not only serve as a performance review but also act as a guide to enhance strategic and operational decisions.

Integration capabilities

Ensure that the software can seamlessly connect with various platforms, such as job boards and social media, thereby streamlining operations. Furthermore, API utilization allows the software to integrate with other tools and systems, providing a cohesive technological ecosystem within your agency.

Compliance management

It is vital to ensure that the software supports compliance with employment legislation and industry standards. It also ensures that detailed audit trails are maintained, providing a transparent record of actions and changes within the software to ensure accountability and compliance.

Data security

It is important to ensure that sensitive data, such as candidate and client information, is safeguarded through robust security protocols. Additionally, ensuring that data transmitted across networks is encrypted protects it from unauthorized access and potential breaches.

Project and task management

Make sure your software has features that help with effective management and assignment of tasks. With this funciontality, you will be able to monitor project progress, allocate resources appropriately, and ensure that delivery aligns with client expectations, thereby ensuring project success.

Step 5: Develop a strategic recruitment approach

Formulate a recruitment strategy that encompasses effective candidate sourcing, screening, and management. Utilize your staffing software to maintain a dynamic database of job candidates, ensuring you can quickly match talent with client needs.

Step 6: Acquire clients through targeted efforts

Identify and reach out to potential clients, offering tailored staffing solutions. Engage in networking, create compelling proposals, and leverage testimonials and case studies to showcase your agency’s capabilities and build credibility.

Step 7: Set up operational infrastructure

Establish your office space, whether physical or virtual, and build a team that aligns with your agency’s mission and services. Ensure your management setup is efficient for your daily business operations, with clear roles and responsibilities defined for your team members.

Step 8: Ensure excellence in service delivery

Implement structured client onboarding processes and utilize your staffing software to efficiently fulfill staffing needs. Use staffing software to gather and address feedback, ensuring continuous improvement in service delivery.

Step 9: Implement continuous improvement mechanisms

Regularly analyze your agency’s performance, identifying areas for improvement. Utilize data from your staffing software to make informed decisions and enhance your services, ensuring they consistently meet client and candidate expectations.

Step 10: Manage and enhance client relationships

Focus on client retention through excellent service, regular communication, and value-added services. Utilize your staffing software to manage client information, ensuring personalized and timely interactions.

How much does it cost to start a staffing agency?

Starting a staffing agency involves various financial aspects, including initial investments, ongoing expenses, and operational costs, each playing a crucial role in shaping the agency’s financial health and sustainability.

Initial investment

The initial investment to start a staffing agency can vary widely depending on the scale, location, and niche of the agency. This encompasses costs related to:

• Office space (rent or purchase)
• Equipment (computers, phones, furniture, etc.)
• Employment agency license and registration fees
• Professional liability insurance / general liability insurance premiums
• Marketing and branding (website, promotional materials, etc.)

Ongoing expenses

Recurrent costs that the agency will incur to maintain its operations include:

• Monthly rent and utility bills
• Salaries of internal staff
• Marketing and advertising costs
• Technology and software subscriptions
• Travel and transportation expenses
• Office supplies and miscellaneous costs

Operational costs

Expenses related to the core operations of the staffing agency, such as:

• Candidate sourcing (job boards subscriptions, recruitment marketing, etc.)
• Background checks and verification processes
• Training and development programs for internal staff and candidates
• Networking and relationship-building activities (events, memberships, etc.)

Payroll financing

Payroll financing is a critical aspect, especially considering that staffing agencies often need to pay temporary workers before clients make payments. This involves:

• Ensuring that candidates are paid on time, regardless of client payment schedules
• Potentially utilizing payroll financing services or credit to manage cash flow
• Managing taxes, benefits, and other payroll-related expenses

Fees and commissions

In the staffing industry, fees and commissions are crucial revenue streams and involve:

• Client fees: Staffing agencies typically charge employers a fee, which can be a flat rate or a percentage of the hired candidate’s annual salary.
• Candidate commissions: Some agencies might charge candidates a fee, often a percentage of their salary, especially in certain niches like entertainment or modeling.
• Markup rates: Agencies providing temporary staff usually add a markup to the hourly rate paid to the temporary staff, which is then billed to the client.

Additional considerations

• Legal and compliance costs: Ensuring adherence to employment laws and industry regulations, which might involve legal consultations and compliance management expenses.
• Technology investments: Implementing staffing agency software and other technological tools to streamline operations and enhance service delivery.

Key metrics to track when starting an online staffing agency

Starting an online staffing agency involves keeping a keen eye on various metrics to ensure the business is moving in the right direction. Here are some key metrics that are pivotal to track:

Candidate acquisition metrics

• Application rate: Number of applications received per job posting.
• Source of hire: Identifying which platforms (job boards, social media, etc.) are bringing in the most candidates.
• Time to hire: The duration between posting a job and hiring a candidate.

Client acquisition metrics

• Client conversion rate: The ratio of leads that convert into paying clients.
• Client acquisition cost: The total cost involved in acquiring a new client, including marketing and sales expenses.
• Client retention rate: The percentage of clients who continue to use your services over a specific time period.

Financial metrics

• Revenue: Total income generated from client fees and commissions.
• Profit margin: The net profit of the agency after deducting all expenses.
• Return on investment (ROI): Evaluating the profitability of investments made in marketing, technology, etc.

Operational efficiency metrics

• Job order to placement ratio: The number of job orders compared to successful placements.
• Submission to hire ratio: The number of candidate submissions compared to successful hires.
• Fill rate: The percentage of job orders that the agency successfully fills.

Candidate and client satisfaction

• Net promoter score (NPS): Measuring the willingness of clients and candidates to recommend your agency to others.
• Feedback and reviews: Analyzing feedback from clients and candidates to gauge satisfaction and identify areas for improvement.
• Quality of hire: Evaluating the performance and retention of placed candidates.

Technology and online presence metrics

• Website traffic: Monitoring the number of visitors and interactions on your agency’s website.
• Engagement on social media: Tracking likes, shares, and comments on your social media posts.
• Email marketing performance: Analyzing open rates, click-through rates, and conversion from email campaigns.

Compliance and legal metrics

• Compliance rate: Ensuring that the agency adheres to industry regulations and employment laws.
• Legal disputes: Tracking any legal challenges or disputes involving the agency.

Employee performance metrics

• Recruiter efficiency: Measuring the number of placements made by each recruiter.
• Employee satisfaction: Gauging the job satisfaction and engagement levels of your internal staff.
• Employee turnover rate: Monitoring the rate at which internal staff leave and are replaced.

Market trends and analysis

• Industry demand: Keeping track of the demand for staffing services in your specialized sectors.
• Market share: Understanding your agency’s position and share in the staffing market.

Monitoring these metrics provides a comprehensive overview of the agency’s performance, highlighting areas of success and pinpointing aspects that may require attention or improvement.

Utilizing a robust staffing agency software can assist in tracking and analyzing these metrics effectively, thereby supporting informed decision-making and strategic planning.

Staffing agencies vs. talent acquisition platforms

What makes a staffing agency different from popular online hiring platforms?

It can get a bit tricky!

So, we’re here to help make things clear.

First, we’ll give you a quick and easy explanation of each type of hiring service. And don’t miss our handy table below—it breaks down the main differences to help you figure out which option might be best for your next hiring adventure.

• Staffing Agency: Traditional model, provides candidates for permanent or temporary roles. High control over hiring.
• Freelance Marketplaces: Platforms like Upwork, focus on connecting freelancers with businesses for short-term projects.
• Professional Networking & Job Boards: LinkedIn and Indeed focus on professional connections and job postings, respectively.
• Gig Economy & Specialized Staffing: Platforms like Uber or Toptal provide short-term work or specialized talent.
• Remote Work Platforms: Platforms like Remote.co focus on listing remote work opportunities.
• Project-based Collaboration: Guru is an example where businesses and freelancers collaborate on specific projects.
• Virtual Assistant Platforms: Belay and similar platforms connect businesses with virtual assistants for administrative tasks.
• Recruitment Process Outsourcing (RPO): Outsourcing of all or part of the recruitment processes to an external service provider.

Each platform type has its unique features and is suitable for different hiring needs and structures. The choice between them would depend on the specific requirements, budget, and scale of the hiring entity.

Today, we’ve learned key steps to start a staffing agency. This guide emphasizes understanding the staffing industry, picking a niche, and ensuring legal compliance right from the start. It stresses the need to create a detailed business plan covering finance, operations, marketing, and risk management. Developing a strong brand and using digital platforms for marketing and acquiring clients are also highlighted. We have also discussed the importance of using staffing software to streamline operations and focused on how to build relationships with clients and candidates, providing quality service, and sticking to ethical and legal standards for sustainable growth.