Staffing companies began in the 1940s when men were shipped off to World War II. Many vacant posts were left behind. The need to sort skilled talent fast grew, and right along with it the staffing agency industry developed. Kelly Services, Inc., for example, has come a long way since their roots in the 1940s and placing iconic “Kelly Girl” secretaries in the 1960s. They now serve a variety of industries and have more than 1500 field offices.
The need for staffing agencies, headhunters, employment agencies and recruitment firms (which, incidentally, are all pretty much the same thing) has not waned. All these agencies source and hire talent based on a client's needs— for temporary, temp-to-hire, and permanent positions.
Staffing companies offer a wide range of employment-related and hiring services. These include posting job listings, recruiting, interviewing, and running background checks.
The menu may vary, depending on the targeted clientele and their situation. As long as there are toles to be filled, there will be a need for these kinds of services
Naturally then, as a professional in the field of HR and recruitment, starting a staffing agency of your own is a viable entrepreneurial endeavor. But it’s easier said than done.
Initial Considerations of Starting a Staffing Agency
Before printing business cards, consider whether running your own employment agency is right for you.
This article will cover some basic considerations to work through, including
- How much does it cost to start a staffing firm?
- Is it a profitable business (how much do i make)?
- Is it difficult to start a staffing agency?
- Is staffing a growing industry?
- Is it a competitive industry?
- Where do I begin?
- Pros and cons of starting a staffing agency, and
- A checklist for opening a successful staffing agency.
Starting a Staffing Agency? You May Want to Know…
Before starting your own employment agency, familiarize yourself with the latest recruitment and hiring trends. It is important to understand new regulations, like the legalities and pay transparency and posting salary ranges. Brush up on industry-specific trends, like which sectors are experiencing labor shortages. Companies struggling to hire full-time employees means an opportunity for you!
What is your unique selling point?
Think about your specific experience and skill set. As an entrepreneur, is there a corner of the temp agency sector in which you’d best be fit to lead? Are you, for example, especially good at hiring teams for start-up companies? Do you have a lot of experience at recruiting technical people, executives, or remote talent?
The opportunities abound! According to the American Staffing Association, staffing employees work in virtually all occupations in all sectors:
- 36% Industrial
- 24% Office–Clerical and Administrative
- 21% Professional–Managerial
- 11% Engineering, Information Technology, and Scientific
- 8% Health Care
Is the intention to offer temping solutions?
If so, it is important to understand that you may be the employer of record for any temporary workers you are providing to your clients. There are differences between employers of record and staffing agencies but, in general, this means you’ll need to be prepared to be a business owner who also manages a labor force.
You’ll need to be set up for payroll and taxes correctly. Consult with a business attorney and/or an accountant to understand this element of running a temp agency.
After considering the above, you’ll want to roll up your sleeves and pull out your paperwork. A serious look at your finances, potential costs, legal requirements and pros and cons will help guide your decision about starting your own employment firm.
The Costs Associated with Starting a Staffing Agency
According to Advance Partners, if you’re ready to dig in and do a lot of the administrative and set-up work yourself, your initial cost will be about $3K - $10K.
If you hire a business attorney to consult about your entity formation, taxes, and insurance, the price tag bumps up to $11K - $34K. If you are investing in office space and software (e.g. time and attendance tracking, candidate tracking, and a payroll system), you could spend up to $250K.
Starter Story boasts a maximum startup cost for a temporary staffing agency to be just under $43K with an average cost of almost $25K. Also, bear in mind that a lot of these costs will be recurring.
Although it might be tempting to do as much as possible yourself to save cash flow, be logical about the return on your invested time. For example, you may be able to write a lot of the paperwork yourself, but will you design your own website and marketing material? Think about where the cost of hiring in expertise is validated by the time you’ll free up to focus on other important things.
Regardless of whether you do most of the work yourself, or hire others to help, a serious review of your finances is in order. Do you plan to be bootstrapped (funded by your own initial capital and running on revenue generated by the company), or is the intent to recruit investors?
Will you be setting up shop all on your own or with a business partner? What is your threshold for risk? How many months can you sustain without profit?
Profits to Expect from a Staffing Agency
Over the course of a year, America’s staffing companies hire 16 million temporary and contract employees. If you start your own agency and can get a piece of this pie, then you’ll likely be profitable.
According to Human Resources MBA, “a staffing agency makes their profit by charging a markup that could be anywhere between 25% and 100% of the employee’s wages depending on the job.” The Bureau of Labor Statistics reports that the median annual wage for general and operations managers in 2021 was $97,970/year. If your agency is contracting one manager per year, you’d be making $20K on that one placement. And that’s on the low side.
But what about the long term?
Is Staffing a Growing Industry?
The prevalence of hiring contingent workers has been on the rise. Trends toward flexible work schedules and remote work accommodations have caused more companies to seek the help of staffing agencies, so your scope for potential clients is expanding. With consistent growth over the past decade (as depicted above), demand for staffing solutions is expected to increase to a projected $218.8 billion market share in 2023.
As seen in the chart below, American Staffing Association data shows staffing and recruiting industry sales grew 20% in 2021 after a dip during the height of the pandemic.
An employment agency’s client could be seeking temporary or contract staffing, temp to hire, permanent placement or even outsourcing. There are also new aspects of this growing business, like on-demand staffing services. This operates more like a mobile marketplace (and could be a consideration if you are seeking low startup costs).
If you want to read about growth, check out the success story of Jobandtalent.
Is it a Competitive Industry?
Simply put, yes!
It would be folly to believe that starting your own business in the staffing industry will be unaffected by the existing competition. The key is to leverage your knowledge and experience to develop a niche. Work with your current networks to develop relationships and contracts that would benefit from your specific experience.
Where to Begin (!?)
A logical (and wise) first step would be to meet with a business attorney and/or accountant to fully understand your area’s laws and regulations.
They should help you clarify the following:
- Will you need a federal, state and/or local business license to operate your business?
- How will you handle requirements around acting as an employer to your temp workers?
- Are you prepared to manage payroll, income tax, payroll tax and work comp?
- How will you handle your own self-employment tax, excise tax and paying quarterly estimated taxes?
- Should you have a contract for your clients that includes a dual indemnification clause?
- What will you need to protect yourself? This might include a legal entity set-up, like a limited liability corporation (LLC) or a sole proprietorship.
Also consider purchasing general liability insurance, professional liability insurance, and worker’s compensation insurance.
Decide whether you will separate your agency’s assets from your personal assets with a registered entity and a separate bank account?
If you have investors coming on board, you will also need a Corporate Director Agreement.
Finally, consider your cybersecurity and required office technology. Do you need a time and attendance system to keep track of the billable hours you’ve contracted temp workers? Do you need an applicant tracking system to manage job candidates? Do you have the means to invest in computer software that can safeguard sensitive client information? Check out software that other staffing firms use for ideas.
Pros and Cons of Starting a Staffing Agency
Just as with any other business endeavor, there are many serious considerations when starting your own staffing firm.
The Benefits of Starting Your Own Staffing Agency
You will get to choose the temporary workers and clients with whom you want to contract. You can make the business as large or small as you like by choosing a niche (you could narrow down by industry or by employment type, such as returnships) and then expanding, or not. You can also choose to rent an office or run things from home, and even how heavy your workload is.
Rewarding Work (Intellectually, Emotionally, and Financially)
Using your skills to offer your clients pre-screened and readily available candidates means you are giving them a great product and service. You are reducing their legal risk (health insurance, labor laws) and solving an immediate problem for them. This means repeat business and word of mouth marketing.
High Retention Rates and Margins
Once you’ve established your reputation as a staffing solution that provides excellent service, you will benefit from customer loyalty and referrals. With high margins, financial benefits will abound.
The Pitfalls of Starting Your Own Staffing Agency
Especially in the early days of starting a staffing company, there are no guarantees of how much income you will make or how many hours you will need to work to stay afloat. Businesses may not want to pay marked-up prices or suffer from culture gap issues with temp works. With a limited track record, it may also take them time to trust you and want to hire you.
Time to Become Profitable
With the cost of engaging expensive attorneys, accountants, and web designers to get started, it may take some time for your business to become profitable. The ramp-up time to profitability may be difficult to endure. Are you prepared? What is your plan if it takes longer than you’ve projected to turn a profit? There is some unavoidable anxiety connected to these uncertainties.
your employees control your profitability and reputation. If they bail on a job early, if they don’t stay motivated to work, or if they just opt to leave your firm, this will negatively impact you emotionally and financially.
Checklist for Opening a Successful Staffing Agency
If you do decide to launch your journey to open an employment firm, good luck! This checklist will help you stay organized and focused.
1. Create a business plan: Think about your area(s) of expertise— your competitive advantage. Focus your business ideas on an industry that you know so you can be a value add for your clients and understand your candidates.
2. Research your competition and target market: Review job boards to understand what your client’s highest needs are right now.
3. Determine your business model: Is your goal to start as a small business and stay that way? Will there be a growth plan to move from small business to medium or large? What will your customer journey look like? What are the services you intend to offer? Are you just starting a temp agency, or will you also offer full-time recruitment services? How will your services solve business needs?
4. Get advice: Consult a business attorney and/or accountant to discuss setting up a legal entity. Is it best for you to be a limited liability company or sole proprietorship, for instance. Discuss tax classification, contracts and insurance.
5. Set your goals: Look at your business plan and define success. What key performance indicators (KPIs) will you track to know if you are succeeding? What types of businesses will you target? Who are your competitors? How will you build your bench of employees for hire?
6. Organize your finances: Open a business bank account and credit card in the agency’s name so you can keep its expenses and income separate from your personal finances.
7. Secure funding: Whether it be your own capital, investor capital, or financing.
8. Create your marketing strategy: Come up with a unique name and sales pitch that communicates your company’s purpose. Pull this through to creative concepts for your marketing channels (social media, website, customer touch points). Decide where you will reach your target market, and how much you can spend on creating awareness of your brand and services.
9. Apply for an Employer Identification Number (EIN): This is also known as a Federal Tax Identification Number. It is issued by the IRS and is used to identify a legal business entity.
10. Figure out your daily business operations: Where will work get done? Will you rent office space or start home-based? Who will man incoming correspondence? If you provide temporary employees as a service, how will you dispatch your temps and how will they get to the client’s premises?
11. Get online: Research domain names that will support your business name and goals.
12. Build a website: Or get a web designer to do it for you. Ensure it conveys your unique selling point - the value you bring to companies that your competitors lack.
13. Buy equipment: Start out with the hardware and tech that you need most. You can always get fancier as you go.
14. Build your client network: Start cold calling if you’re not finding clients or getting the traction for your crew of temporary workers.
Some Final Thoughts
Managers spend an average of 33 to 49 days to hire a new worker. During this time their own work and the overall productivity of the organization suffers. This is why staffing businesses like yours can be successful! You can solve this problem.
Maybe your new staffing agency will provide on-demand staffing solutions for unpredictable needs. Or you will focus on traditional staffing solutions for predictable needs. Or both.
Regardless of how large your company is, which industry you focus on or where your desk is located - starting an employment agency means you’ll be fulfilling the needs of our very important labor market. After all, without workers, businesses cannot flourish. Our doctor’s offices can’t check in patients. Our builders can’t keep their construction jobs organized. Our public schools can’t keep our kids safe and educated. Starting your own employment firm will undoubtedly be challenging. But it will prove rewarding and beneficial to your community and our society.