So, you have been recruiting for a big agency, a firm owner, or maybe you have been in HR and are ready to apply your passion for people to the recruiting profession. Something has driven you this point. Congratulations for considering and researching the next logical step…how to start a recruiting business!
What follows are some basic steps that will allow you to be a well-planned and profitable recruiter in the years ahead. Luck and timing can have an impact on the magnitude of your success but only your effort, aptitude, dedication, and commitment to working a plan will deliver the result.
There are many considerations that will be specific to you and your situation. Some considerations will be a result of timing, finances, market conditions or economic cycles. The thing totally within your control will be your focus and commitment. If your desire and commitment is low, stop reading this now!
Hey, you are still here…now we will examine some steps for you to consider and complete.
How to Start a Recruiting Business: Phase 1
Step 1: Start My Business Now?
This can be as simple as YES, NO or NOT NOW/MAYBE LATER. Until you complete many of the steps below, the answer to this question may not be clear. You have options. Revisit this after completion of the steps below.
Step 2: Self-assessment
While you might have the desire to be the owner of your own business, you will need to assess your skills, personal motivation, and commitment openly and honestly. Are you a self-starter? Do you have the planning, sales and work habits required to deliver for 12 to 18 months before reaching a business breakeven? Can you handle massive levels of rejection and keep moving forward?
Ask your friends and loved ones if this is truly a fit for you. Make sure to connect with 3 to 5 entrepreneurs and listen to their coaching about what it takes to run your own business.
Make sure to assess yourself for both the desire/passion to start your own recruitment business, as well as the attributes and abilities that will allow you to succeed. See Are You Ready to Own a Recruitment Firm for more info.
Step 3: Define your Industry/Segment/Niche/Geographic Focus
Recruitment is a massive market with many opportunities. While it might seem reasonable to find and work any reasonable business that you can find, that is likely a recipe for wasting time and potential failure. It is better to define a very limited area of focus, perhaps arrived at based on your personal background, prior work experience, your network of connections and associates, or some area where you have exposure and expertise.
Try to pick industries that have potential for growth in the years ahead. If you are working a shrinking industry with many good providers, your success will be limited.
Are you looking to work executive/professional jobs and candidates? Are you focused on higher salary, more experienced based positions, entry level work or even blue collar and temp positions?
Can you drill down to a very specific group of workers or professionals and get to know everyone in the world that does that job? Taking it to this level will allow you to quickly become the “go to” recruiter of choice for a profession that is perhaps only served by more generalist firms. Not a bad place to be if you are able to be viewed at the expert.
Maybe you want to work California, New York City, or the London market exclusively. That is OK. You likely need 200 to 1000 positions in the defined area to make sure there is enough work to keep you fully occupied. There are business coaches that help you define a focus and measure if your market will allow for success. While some niches allow for very limited geographic focus (think: bank or insurance VPs and NYC might be just fine) while other segments and niches require greater geographic distribution (think: software app developers and you may need to consider the entire globe).
Step 4: Assess Competition
While it may be tempting to move onto future steps and come back to this step later, it may not be wise. To make some of the decisions and choices in later steps, you need to understand what your competition is doing, what they offer and how they position themselves, so that you can appropriately react and set your direction.
Spend the time to see who is in your desired space and understand how they succeed. If you can get financial information, that will help you when setting financial targets and time to reach breakeven. It will also help you assess the need for tools and staff. If the market leader in your space has a staff of 20, that means there is lots of room for you to capture a portion of the market. If there is just one other person working your defined space, it will be hand-to-hand combat with either both of you suffering or only one remaining within a short period of time.
Invest the time now, not after you are financially committed or 18 months into a poorly defined market, segment or niche.
Step 5: Determine Your Service Offering/Pricing Model
As we move ever closer to a financial plan, it is critical to define your basic service offering when determining how to start a recruiting business. Here is a very simple listing of services you might consider:
- Executive/Professional Search
- Position Description Creation
- Position Advertisement Creation
- Hourly Recruitment
- List Building
- Wage/Salary Studies
- Pre-offer Personality Profiles
- Pre-offer Skills Assessments
- Post-hire Onboarding
These can be available to all contracted customers or you can offer this as a cafeteria menu of services allowing customers to pick the ones they value or require.
Contingency search is a pay-for-performance model. You only get paid when an employer makes a hire of your candidate. Contingent recruiters extend a helping hand at every stage of the process, from interview scheduling to candidate onboarding. The fee can be paid in many ways, but is typically based on a percentage of the salary, usually 20 percent to 30 percent in North America, depending on the difficulty and competition in the niche. Multiple roles can sometimes be priced at a lower percentage.
Employer clients pay an upfront fee to get a dedicated effort to fill their open positions exclusively with your organization. This model is often used to fill important or senior positions with some need for immediacy. These searches get your dedicated time and attention and jump in front of contingent search customers.
Contained search is a combination of retained and contingent search services. This typically ends up saving your employers both money and time. The employer pays a partial non-refundable fee to get a dedicated team working exclusively with a priority of the fill. The small amount of the total agreed fees upfront is an indicator of the employer’s commitment to your firm’s success. The remaining fee is paid after the successful hiring of a candidate.
Flat Fee Search
For an agreed fee, you work to fill an employer’s position opening. This most typically used for multiples of the same position. Perhaps you do one search and find multiple candidates and fill multiple roles with less difficulty, hence you offer the lower flat fee. I also see this used for some high salary, complex searches like physicians or lawyers. This model is sometimes used as the model for a first placement done with a skeptical new client.
Often frowned upon by serious established recruitment business, this model might be appropriate for a client evolving out of a “do it themselves” model to a paid recruitment model. Rather than speculatively doing work via a contingent model, you get paid for the time invested on an hourly basis. It is tough to maintain a profitable recruitment business with any volume of your business being done via this model. It might offer the opportunity to solve unique client issues.
It is appropriate to consider each of these options based on the needs of your client, your experience and ability to fill the client’s role. It should be noted that solid contracts or pricing agreements should be in place before you begin working with a client. Failure to have a signed agreement in place can cause wasted time and perhaps even legal disputes.
Step 6: Financial Plan/Point to Break Even
When starting a new business, you need to be prepared financially to support the business for as many as 18 months before reaching a breakeven level of production. Reaching breakeven levels of performance can happen very quickly, but it is unwise to plan on that result, or to be financially required to reach that level, in less than 18 months. Capitalization to support 18 months of cost absent significant income also covers for short-term downturns in income that happen in many new businesses.
Prepare a List of Costs
A recruitment business can be started as a sole owner/operator model with relatively low levels of capital. Build a list of costs including all the basic requirements:
- LLC/incorporation and business license (approximately $1000)
- Forms/Agreements/Documents (approximately $500)
- Marketing materials/Business cards (approximately $1000)
- Website and content creation (approximately $2000)
- Space/Rental/Office (allow $500 per month minimum)
- Telecommunications/Zoom/Internet ($100 per month)
- Computer/Software/Backup/etc. ($1500)
- Banking/Bookkeeping/Accounting (?)
- Insurance/Errors and Omissions/General Liability (?)
- Memberships and Subscriptions (LinkedIn can run $500/mo.)
You need to be able to invest this capital monthly or annually until business reaches a level to produce a return. That target should be 18 months at a minimum.
Step 7: Revisit Step 1
Is it a YES? If so move on to Phase 2 activities.
How to Start a Recruiting Business: Phase 2
Step 8: Going it Alone, with Support or with a Team?
In most cases, new businesses are an independent venture with just the benefit of your talent. Sometimes unique opportunities are present that allow you to work with a teammate or a support team. Perhaps a former co-worker with a similar passion or maybe a spouse or partner with the time and a passion for your success. If you have this option, consider yourself fortunate!
Other options can allow you to add support and a team with low cost and low risk.
RPO Service Providers
There are many great providers domestically or offshore that can provide support at a low hourly cost. These services can build you lists of candidates and lists for client prospecting. Most services are hourly and are far more cost-effective than your investment of your own time to do the research.
Many small firms work cooperatively with one another to complete placements for clients. You get half the fee for half the work. Make sure there is a legally binding agreement in place that assures you get paid.
There are some great organizations that support split-fee recruiting. (Note: NPAworldwide is one of those networks.) While not for everyone, a split network can be a good low-cost option for many newer firms. Some require a year in business or strong referrals before extending membership.
Step 9: Business Name/USP/Marketing Plan
Think ahead on this one. If you ever want to sell your business, a recruitment business named after yourself will have less value than a business with a great fit to the industry it serves.
If you are unsure of your niche, be careful of doubling down on a name that is not able to cover multiple markets or cross over to a new niche.
Make sure you have claim to the name before investing in marketing materials, branding, and a website. Do your homework!
What is the “Unique Selling Proposition” for your recruitment business? Are you the fastest, most experienced, most laser focused on the niche, offer an outstanding value, the best guarantee, or something other?
Work on a website and social media strategy that helps attract new business into your sales funnel. Inbound marketing will outperform difficult and time-consuming cold calling efforts over the long haul. Not to say cold calling is unnecessary, just that the better your marketing plan and execution, the easier your outbound effort and the greater the success. Invest in doing this well and automating what you do. Here is another post about marketing needs for a new recruitment firm.
Step 10: Get Trained, Practice, Develop Skills, find a Coach
There are many low cost or affordable training options for recruiters. You need training from industry experts. They will offer ideas and methods that could take you years to discover or create on your own. You need constant training and a bit of motivation; these provide both.
Find someone you can use to practice your phone calls and pitches with. You need to hone these skills as you will often only have one chance to convert a new customer or win the confidence of a candidate.
Consider a business coach. These services will hold you accountable and offer problem solving help to get you productive and unstuck quickly. There are services specific to the industry and there are membership organizations that offer access to a peer network included in the membership cost.
Step 11: Research Laws and Regulations
There are laws that are important to know. For example, there are things you can ask a candidate and what is legal in one country, one state or one city is illegal in another. Beware. There are business-ending questions you can ask. The costs and time of defending a legal challenge can kill even the best researched, planned and marketed business.
As an example, in NYC, it is illegal to tell a candidate that they will be required to pass a criminal background check before an offer has been extended. If your position description provided to the candidate says that, you can be held liable.
As they say, it is all fun and games until you are handed the subpoena. Do your work to fully understand and abide by all laws and regulations in the geographies and industry you will focus. See: Legal Requirements for Recruitment Firms.
Step 12: Set Business Goals/Monitor Performance
Establish daily, weekly, monthly, quarterly, and annual goals that align with the financial plan established for your new recruiting business.
- Create practices, habits and reporting methods that will allow you to monitor the success of each objective.
- Post and share results with your accountability coach or peer.
- Determine action plans for recovery when objectives and results are out of sync.
- Remember to celebrate successes! Use goals to measure success until financial rewards catch up with expended effort. You will need to find ways to see positives that are being achieved before the profits flow to your bottom line.
How to Start a Recruiting Business: Phase 3
Reinvest in the Business
As you become profitable, make sure you are reinvesting in building a better, more automated business with up-to-date tools and desired services.
There is so much to be done when you start to think about how to start a recruiting business. If done well, you will find the road to success and profitability is smoother and faster.