Many independent recruiters focus exclusively on direct-hire recruitment, and that can certainly be a successful business model. However, it’s not a bad idea to diversify your recruitment firm’s business mix, and contracting is one way to do that. Here are four reasons recruitment firms should consider contracting:
1. “Annuity” income. Contractors get paid for every hour they work, which translates to a “paycheck” to your firm for each hour as well. Just 5 full-time contractors out at a small profit of $5 per hour would generate a $50,000 annuity each year for your recruitment firm.
2. Even out cash flow. For small businesses of all types, cash flow is king. Recruitment firms, especially those with a contingency model, can suffer from wild swings in cash flow when payment for work sometimes doesn’t happen for 90 or more days. It’s tough to manage ongoing overhead with that kind of ebb and flow. Adding contractors is a way to bring in steady, regular income to help balance the cash flow that keeps your business running smoothly.
3. Provide your clients a way to hire when their “hiring budget” is unavailable. Sometimes your clients will have an urgent hiring need, and their normal budget is unavailable. Maybe there has been a spending freeze. Maybe the budget dollars for the fiscal year have already been spent, and no new monies will be available until the next fiscal year. Offering an employee via contract *may* offer your client a solution. Money for contract/temporary labor is very often in a different line item than money for direct hiring. Structure your deal correctly, and the client can convert the contractor to a direct-hire employee and you can still earn a full fee for the placement.
4. Create a saleable asset. If you’re the owner of a recruitment firm, have you thought about retiring? Are you planning on one of your kids taking over the business? What if they’re not interested? If you don’t have an “heir-apparent” whether in the form of a family member or a longtime employee, your options may be limited to either closing the doors or selling your business. Selling recruitment firms isn’t necessarily a quick or simple process. It can be tough to determine the value of the business. Your database probably isn’t worth as much as you think it is. Contingency clients are not a guaranteed source of future income. But contractors are a different story. Contractors ARE a guarantee of future income and thus, are a tangible asset with a defined value.
Are you currently offering contracting as part of your business mix? Why or why not?