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How to Start a Recruiting Agency

Written by:

Esther is a business strategist with over 20 years of experience as an entrepreneur, executive, educator, and management advisor.

Edited by:

David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.

How to Start a Recruiting Agency

Fast Facts

Investment range

$8,550 - $30,100

Revenue potential

$126,000 - $270,000 p.a.

Time to build

1 - 3 months

Profit potential

$75,000 - $108,000 p.a.

Industry trend

Growing

Commitment

Full-time

Recruiters provide a crucial bridge between candidates and businesses looking for top executives. They use their expertise to streamline the recruiting process, helping companies save money and candidates get placed faster. This helps explain why the industry is expected to expand by nearly two-thirds in the coming years, from $29 billion to $47 billion by 2028, according to market analyst Research and Markets. 

Of course, starting a recruiting business requires hard work. Thankfully, this step-by-step guide will walk you through the development and launch process. If you pay close attention, you should be well on the way to earning your share of the lucrative recruiting pie!

Let’s get started. 

Step 1: Decide if the Business Is Right for You

Whether you have recruiting experience or not, it’s a good idea to take a step back and view the industry as a whole before you dive into starting your recruitment business.

Pros and cons

Running a recruitment agency has some pros and cons that you should be aware of. Let’s dive into them below.

Pros

  • Businesses will always need employees and temporary workers
  • It’s possible to generate a steady income through the contract staffing model
  • There is the potential to earn large commissions if you’re placing skilled candidates

Cons

  • Recruitment demand is seasonal
  • Clients will likely prefer you to have recruiting experience
  • Placing candidates can be “hit and miss” since the process has many moving parts

Recruiting industry trends

It’s good to be aware of key trends in the recruitment industry so that you can start on the right path from the beginning. 

Industry size and growth

recruiting industry size and growth

Trends and challenges

recruiting industry Trends and Challenges

Here are some key trends((https://www.forbes.com/sites/forbescoachescouncil/2021/08/31/five-recruiting-trends-ive-observed-in-2021-and-what-they-mean-for-your-job-search/?sh=21180c9069de)) shaping the industry today:

  • Growing use of technology to automate recruiting processes instead of manually trawling through a massive database
  • Shift to digital platforms such as LinkedIn, Twitter, Facebook, and Instagram to find strong candidates; initial interviews conducted online via Zoom
  • Embracing diversity and inclusion to boost team performance

Challenges faced by recruiters include:

  • Attracting qualified candidates
  • Competing with bigger companies

What kind of people work in recruiting?

recruiting industry demographics

How much does it cost to start a recruiting business?

A few specific expenses could inflate how much capital you need to start: your office, software, and equipment.

If you wanted to bootstrap your recruiting agency, you could invest as little as $3,000 to get started. But if you aim to go the whole nine yards, you’ll be looking at $250,000, which would include the best recruitment software, experienced staff and a sizable office space.

For most recruiting startups, though, you should be prepared to spend around $20,000. This estimate doesn’t include future operating expenses.

Start-up CostsBallpark RangeAverage
Setting up a business name and corporation$150 - $200175
Business licenses and permits$100 - $300200
Business cards and brochures$200 - $300250
Building$3,000 - $9,0006000
Equipment and supplies$3,000 - $5,000$4,000
Software$1,000 - $12,000$6,500
Insurance $100 - $300200
Website setup$1,000 - $3,0002000
Total$8,550 - $30,100$19,325

How much can you earn from a recruiting business?

recruiting business earnings forecast

The money you earn will depend on how many candidates you place and their salaries. Industry analyst Top Echelon puts the average recruiter placement fee at about $18,000, and found that 28% of recruiters placed 11-15 candidates each year.

This means if you’re able to place 7 candidates in your first year, you’ll earn $126,000 in annual revenue. With a profit margin of 60%, you’d take in a tidy profit of $75,000. 

As your brand gains recognition, placements could climb to 15 candidates a year. At this stage, you’d hire staff, reducing your profit margin to around 40%. With annual revenue of $270,000, you’d make a tidy profit of $108,000.

What barriers to entry are there?

There are minimal barriers to entry to starting a recruiting business, but there are two to be aware of:

  • Fierce competition due to the lucrative nature of recruitment
  • Payroll to cover the wages of your candidates until your business gets paid under a contract staffing model

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Step 2: Hone Your Idea

develop a business idea

It’s time to start crafting your future business. 

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

Why? Identify an opportunity

Your competition will be anyone in the recruiting industry that focuses on the same niche. You may also have competition from internal recruiters working for the firm looking to make a hire. 

Now’s a good time to do some competitor research. Here are a few questions you can ask yourself:

  • How many recruiters are targeting the same candidates as me?
  • How long have they been in business?
  • Are they specialists, or do they recruit in other areas as well?
  • How much do they charge for their services?

What? Determine your services

In the recruiting game, your niche is the professions you recruit for. While you may consider a larger category such as technology a niche, this is too broad as there are almost endless positions in IT.

A better niche within tech would be software engineering. You may even decide to niche further by focusing on front-end, back-end, or full-stack development. After doing well in your chosen niche, you may consider branching out to other roles related to that niche. 

When it comes to starting a recruitment agency, there are two main types to look out for.

A direct hire recruitment business specializes in placing candidates on a full-time basis only. These recruiting firms may get paid after a candidate is placed or receive a retainer from the company they recruit for. Once the candidate is placed, there will be nothing left to do for that particular person.

A contract hire staffing agency will usually manage their candidates by themselves since they’re not guaranteed a long-term position. These recruiting agencies will typically be paid a percentage of their candidates’ wages based on the amount of time they work. These agencies may also need to place the same candidate multiple times per year.

Running a recruitment business can be quite varied. Here are some of the common activities:

  • Assess resumes: You’ll need to evaluate resumes constantly to find the right candidates
  • Interview candidates: Shorter calls and longer face-to-face or video chat interviews
  • Prepare candidates: Formal interview to prepare candidate for interview with the hiring company
  • Source leads: Many candidates you’ll need to find yourself, on social media and beyond 

How much should you charge for recruitment?

For direct hires, recruiters usually charge a fee of about 20% of the placed candidate’s annual salary. This number varies depending on industry, but if you place a candidate with a yearly salary of $100,000, you can expect a fee of around $20,000.

For contract hires, you’ll be taking a set fee from your candidate’s wages. You can set a similar percentage (20%), but instead of having it paid upfront, you’ll get it weekly or monthly, depending on when the company pays you.

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Once you’ve got your niche, you’ll need to figure out who your target market is. In other words, who wants the candidates that you’ll be providing?

If you’re recruiting software engineers, for instance, your target market will be tech firms. You might also use your own career experience to show that you understand the companies you plan on doing business with.

Where? Choose your business premises

In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed

As a recruiter, it’s a good idea to have an office close to the industry that you recruit for. For example, Silicon Valley for tech recruiting. This proximity will help you connect with the right businesses and build professional relationships through face-to-face contact.

With today’s technologies, however, proximity is not necessary. You can recruit for any firm in the country, or beyond. Keep in mind, while Skype calls and Zoom meetings get the job done, nothing beats an in-person meeting for building relationships.

recruiting industry business rating

Step 3: Brainstorm a Recruiting Agency Name

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better 
  • The name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “recruiters” or “executive hire”, boosts SEO
  • Choose a name that allows for expansion: “NextGen Talent Solutions” over “TechHire Agency”
  • A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Recruiting Agency Business Plan

Here are the key components of a business plan:

what to include in a business plan
  • Executive Summary: Summarize your recruiting agency’s mission, the specific sectors you’ll serve, and how you’ll connect businesses with top talent.
  • Business Overview: Define the scope of recruitment services your agency will provide, such as executive search, temporary staffing, or specialized industry placements.
  • Product and Services: Detail the full suite of services, including candidate sourcing, screening, interviewing, and placement.
  • Market Analysis: Assess the demand for recruitment services within the industries you’re targeting and the availability of potential candidates.
  • Competitive Analysis: Identify your main competitors and articulate your agency’s unique approach to recruitment and client service.
  • Sales and Marketing: Outline your strategy for attracting both companies in need of employees and qualified job seekers, through methods like online marketing and networking events.
  • Management Team: Highlight the experience and qualifications of your team members who will lead and grow the business.
  • Operations Plan: Describe the process for matching candidates with employers, from initial consultation to final placement.
  • Financial Plan: Provide financial projections, including revenue streams from placement fees and operational costs.
  • Appendix: Include supplementary information such as detailed market research, client contracts, or candidate assessment procedures that underpin your business plan.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to recruitment. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your recruiting firm will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

types of business structures
  • Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
  • General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
  • C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
  • S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just needs to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have. 

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Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

types of business funding
  • Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
  • Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
  • Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
  • Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best options, other than friends and family, for funding a recruiting business.

Step 8: Apply for Recruiting Business Licenses and Permits

Business Licenses and Permits

Starting a recruitment business requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your recruiting business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

types of business insurance
  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

Launching a Business

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

Recruiting software tools like Zoho Recruit, PCRecruiter, and JobAdder can help you search databases, track candidates and manage your client relationships. 

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Marketing

Here are some powerful marketing strategies for your future business:

  • Specialized Content Marketing: Develop and share informative content tailored to specific industries or job markets on platforms like LinkedIn, showcasing your expertise and positioning your agency as a thought leader.
  • Client Testimonials and Success Stories: Collect and promote compelling testimonials from satisfied clients, emphasizing successful placements and the impact your agency has had on their businesses.
  • Strategic Social Media Engagement: Actively engage with your audience on social media by participating in relevant discussions, sharing industry insights, and promoting job opportunities to build a strong online presence.
  • Referral Programs: Implement a referral program that incentivizes both clients and candidates to refer potential businesses or job seekers, creating a network effect to expand your reach.
  • Partnerships with Educational Institutions: Collaborate with universities, colleges, and vocational schools to establish connections with potential candidates, offering workshops, seminars, or internships to build a pipeline of qualified talent.
  • Local Community Involvement: Attend local events, job fairs, and business forums to establish a physical presence in your community, fostering relationships with businesses and job seekers.
  • Online Advertising: Utilize targeted online advertising on platforms like Google Ads or social media to reach specific demographics or industries, ensuring your agency is visible to the right audience.
  • Email Marketing Campaigns: Develop targeted email campaigns to nurture relationships with clients and candidates, providing regular updates on industry trends, job opportunities, and the services your agency offers.
  • Mobile-Friendly Approach: Optimize your website and marketing materials for mobile devices, recognizing that many job seekers and clients use smartphones for their job search and business interactions.
  • Continuous Professional Development: Stay updated on the latest trends and technologies in recruitment through continuous learning, demonstrating your commitment to providing cutting-edge services to clients and candidates alike.

Focus on USPs

unique selling proposition

Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your service meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your recruiting business could be:

  •  Find long-term hires or your money back! 
  • The best candidates for software engineering
  • Reduced fees for first-time clients

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a recruiting business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in recruitment for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in recruitment. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.

Step 12: Build Your Team

Building a Team for a New Business

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a recruitment business would include:

  • Experienced Recruiters
  • General Manager
  • Marking Lead

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.

Step 13: Run a Recruiting Agency – Start Making Money!

Running a Business

You’re now ready to start recruiting! What better place to find job seekers than where they hang out? Recruiters are increasingly focusing not just on Linkedin, but also on Twitter, Facebook, Instagram, and other platforms to find strong candidates. 

It’s also a good idea to embrace technology to improve recruiting processes. There’s natural language processing (NLP), which makes resume screening much faster. There’s also predictive analytics, which helps recruiters identify the best talent based on chosen parameters. So instead of manually trawling through a massive database, you’ll receive a curated list of the best candidates. Happy headhunting!

Recruiting Business FAQs

How does a recruiting company make money?

Recruiters make money through two different payment models. They can be paid per placement-for direct hires-which is a set percentage of the candidate’s annual salary. The other way is through contract staffing. Contract staffing is where your agency acts as an external H.R. department and manages the candidates. This model involves taking a set percentage of the fee your clients pay for your candidate’s work.

What qualifications do I need for recruitment?

There aren’t any specific qualifications that you need to become a recruiter. While it’s a good idea to get some recruiting experience before you start a fully-fledged recruiting business, you’ll be able to learn everything you need from online resources and trial-and-error.

How can I attract clients and employers to work with my recruiting agency?

To attract clients and employers to work with your recruiting agency, build a strong online presence through a professional website and active social media profiles. Showcase your expertise, success stories, and client testimonials. Network with industry professionals, attend relevant events, and join business associations.

How can I conduct thorough candidate assessments and interviews to ensure a good fit?

Review resumes, cover letters, and portfolios to evaluate qualifications and experience. Conduct structured interviews to assess candidates’ skills, knowledge, and cultural fit. Implement behavioral or situational interview techniques to gauge their ability to handle real-life scenarios.

How can I handle reference checks and background screenings for candidates?

Handle reference checks and background screenings for candidates by developing a standardized and thorough process. Obtain candidate consent and contact provided references to gather insights about their performance, work ethic, and interpersonal skills. onduct comprehensive background screenings, including criminal records, employment history verification, education verification, and professional license checks.

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How to Start a Recruiting Agency