How to (Wisely) Choose a Recruitment Business Model

One of the most important steps in how to start a recruiting business is choosing a recruitment business model. (If you don’t believe me, read the blog post for which I just provided a link. “Create a business model” is #12 on the list.)

However, there are many different aspects involved with choosing a recruitment business model. To once again reference the blog post I referenced in the above paragraph, there are considerations regarding the structure of your business. Will you be a sole proprietor? A limited liability corporation (LLC)? An S-Corp?

These are all questions you (and your accountant and your lawyer) must answer. However, they are not questions that we are going to answer. That’s because we’re going to answer some other questions about choosing a recruitment business model. You might call them more practical questions, and we would not try to stop you if you did.

Recruitment business model options

Our reading audience for the Top Echelon Blog consists primarily of recruiters who work for third-party recruiting agencies and also owners of third-party recruiting agencies. Since that is the case, below are the three main types of recruitment business models for such agencies.

#1—Solo practitioner recruitment business model

This means exactly what it sounds like it means: you’re a one-man (or one-woman) show. Let’s look at both the pros and cons of this particular business model, shall we?

The pros include the following:

  • Lower overhead, especially in terms of personnel . . . because it’s only you!
  • Higher profit margin (because there’s lower overhead)
  • Greater degree of independence, especially in terms of decision making

The cons include the following:

  • More difficult to stay motivated (in part because of that darn independence)
  • If you get sick or can’t work, nothing gets done!
  • When, exactly, do you plan on taking a vacation?
  • Not much to sell when it’s time to retire

Sure, perhaps you get to work out of your own. But how will you not start binge-watching Netflix? This business model demands discipline in hefty doses. After all, marketing and recruiting calls aren’t just going to make themselves. Come to think of it, placements aren’t just going to make themselves, either. So if you don’t possess hefty doses of discipline, then perhaps this is not the recruitment business model for you.

#2—Agency owner recruitment business model

In this model, you are not on your own. That’s because you’re going to hire other recruiters to work in the agency, as well. You’ll be the agency owner. They’ll be the recruiters. And you’re all going to work a recruiting desk. You just have more work to do as the owner . . . including recruiting business development.

The pros of this business model include the following:

  • There is potential for more income for the agency (with the emphasis on the word potential)
  • Potentially positive team dynamics (there’s that word again)
  • You can be sick . . . or even take a vacation!
  • Might be something to sell when it’s time to retire

The cons include the following:

  • Bigger risks
  • Potentially smaller profit margin
  • Having to deal with employees (feel the headache coming on?)
  • Possibility your recruiters leave to work for another agency or for themselves . . . the gall

There is also another con, but it deserves its own paragraph. The attribution rate for recruiters is horrible. It’s “three out of every four recruiter fail” horrible. So making the decision to hire recruiters isn’t the difficult part. Hiring people who turn into good recruiters are stick around is the difficult part.

#3—The researcher recruitment business model

With this business model, you still hire employees. However, they are not other recruiters. Instead, you hire researchers to help you bill more. So basically, this business model is a blend of the first two on our list.

The pros of this business model include the following:

  • Lower compensation for researchers as compared to recruiters = lower overhead
  • Still has the potential for positive team dynamics
  • Potential for more income for the agency
  • Once again, you can be sick . . . or even take a vacation!

The cons include the following:

  • Having to deal with employees (feel another headache coming on?)
  • You’re the “idea man” . . . or “idea woman” . . . or “idea person” (just pick one)
  • Still not much to sell when it’s time to retire

Obviously, the researchers are not tackling the full cycle of recruiting. Their only role is to support you, the agency owner. You’re the one hitting the phones and making things happen. They’re the ones doing what they need to do to help you make things happen. These days, their number-one priority should be sourcing candidates so you can get on the phone and “recruit the bejeesus” out of them.

You may have already guessed this, but the recruitment business model you choose is predicated—at least in part—on your personality and your preferences. Do you like to work alone? Do you like to work with other people? Are you self-disciplined? Do you want to be able to take a vacation without worrying? Do you want to have something to sell at the end of your recruiting career?

The answers to these questions will help you to determine with recruitment business model you should choose. We can’t choose it for you.

Adding contract staffing to your business model

We’re almost done, I promise. Just one more word about business models in recruiting.

No matter which of the three models you choose, there is one thing that you can do with all three. You can add contract staffing services to them. When you offer contract staffing to your clients, you add a stream of recurring revenue to your agency, and more streams of revenue, the better.

Not only that, but when you have a stable of contractors, you have something more to sell when it’s time to retire. If you’re a solo practitioner who only makes direct hire placements, you have nothing to sell. Want to add value to your agency? Place contractors!

You don’t even need to run your own recruitment back office. You can outsource that part, so say, Top Echelon Contracting.

As you can see, there are many factors and considerations involved in the important process of choosing a recruitment business model for your agency. So now that the facts have been laid out before you, the choice is yours.

So choose wisely.

One response to “How to (Wisely) Choose a Recruitment Business Model”

  1. Tess says:

    Excellent food for thought! Great recruiters do not make great owners…but they can. Thanks for the reminder!

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