Starting a Staffing Agency: A Step-by-Step Guide

According to a survey by CareerBuilder, hiring the wrong person can cost you $17,000 on average, and 75% of businesses make this mistake.

The United States of Labour goes even further to say this number would equal 30% of the wrong hire’s first year’s salary. Some agencies say this number is higher.

Businesses understand that finding a match goes far beyond how good a candidate looks on paper. They’re investing in the right hiring decisions— which is where you come in.

If you’re a lone recruiter or a staffing agency looking to expand, you’re clearly at an advantage — as there has never been so much reason to hire professionals to do the hiring for you.

The tricky part is choosing the right industries to cater to and the right ways to market your services.

This comprehensive guide will tell you everything you need to know about how to start a staffing agency. We will cover everything, from targeting profitable niches to working on your branding to attract the right clients.

Let’s get started.

What is a Staffing Agency?

A staffing agency matches job seekers with employers who have open positions. These agencies work with companies to identify hiring needs, and source qualified candidates. Sometimes, these agencies manage the whole recruitment process on their behalf.

Staffing agencies typically have a large pool of candidates which allows them to identify and attract top talent for their clients quickly.

What Kind of Staffing Agencies to Choose?

Here’s a look at 5 different kinds of staffing agencies, along with their pros and cons.

1. General Staffing Agencies

As a general staffing agency, you serve multiple clients with candidates across many roles. You don’t cater to a specific niche in any industry. Instead, you provide broad-ranging recruitment services across diverse industries and functions.

One of the things you have to do with this type of agency is maintain a large, multi-disciplinary talent pool so you can fill any position at a moment’s notice.

Benefits

• You can fill positions easily because you’re likely to have a large number of versatile candidates in your existing database.
• You can help multiple candidates switch roles if they have transferable skills that are useful across multiple sectors.

Challenges

• It may be harder to attract senior-level or specialized talent without industry-specific recruiting channels.
• The quality of candidates may be poor, as you’ll need to maintain an extensive database for every industry at all times. If this is true, employee retention for your placed candidate may be low, giving your agency a bad name in the long run.

2. Specialized Staffing Agencies

As a specialized staffing agency, you focus your services on a single sector, such as healthcare, accounting, or technology. Your deep vertical expertise helps connect employers to elusive niche talent.

To do this, you need to be well-versed with specific industry qualifications, networks, and trends.

Benefits

• You can expedite client access to very hard-to-find technical experts or experienced specialists.
• Your hires will have more relevant skills and be more likely to be culturally aligned.
• You will have a smaller pool of competitors.

Challenges

• The talent pool is much more limited, and assigning candidates with transferable skills from other industries might not work here, as you only have one or two niches you cater to.
• Larger clients with multi-disciplinary hiring needs might find your qualifications too narrow. For example, a company that needs a graphic designer who can also work in web design will not want a specific specialist, but someone who can handle multiple creative functions.
• Maintaining such a high-quality, niche-specific talent pipeline may be expensive.

3. Contingent Employment Agency

As a contingent employment agency, you urgently fill vacant positions by quickly referring vetted candidates on an as-needed basis for clients. You operate on a contingent payment model, so you only make money for successfully placed talent. This is usually a percentage of the new hire’s first year’s salary.

Benefits

• Since you get a percentage of your placement’s salary, placing higher-salaried individuals would get more profits.

Challenges

• Because you work on a project basis to find urgent hires, there’s limited time to evaluate long-term candidate fit, putting you at risk of placing the wrong candidates.
• The revenue stream is unpredictable and inconsistent because it depends on urgent needs and placement success. This will affect everything, from how many people you hire for your agency to how much overhead you can afford to pay.

4. Direct Hire Employment Agency

As a direct hire agency, you provide clients with an end-to-end hiring solution. You’re in charge of recruiting from scratch, from posting job ads to the onboarding paperwork. This is a useful service for businesses that are too busy to handle hiring by themselves, and the kind of clients you can service is diverse.

Larger companies have reason to hire you for roles that are time-consuming to fill, or when they anticipate a large wave of applications, leading them to outsource this task to you. Smaller businesses with leaner teams and limited bandwidth may also do the same.

Benefits

• Your value proposition is very attractive and easier to sell to clients, as you’ll handle all the work and save them more time, compared to other agencies.
• Larger contracts lead to more profit as you’ll be billing for several services.

Challenges

• You need employees with diverse skills to handle all recruiting processes from start to finish.
• You’re responsible for more and have to ensure the whole process goes smoothly to get paid.
• The process simply takes longer as many unprecedented situations unroll, like a candidate backing out after accepting an offer, making you reach out to backups, or restarting the process again.
• There are substantial overhead costs to support the extensive services you offer.

5. Executive Search Agency

Staffing is a very profitable niche, but one of the toughest and most expensive too. As an executive search agency, your focus is exclusively on identifying and recruiting highly qualified leaders and executives for senior management and C-Suite roles across industries.

This means you have to conduct extensive capability interviews, leadership behavioral analyses, and reference checks for very critical roles.

Benefits

• Once you have access to a network of passive senior talent open to new roles, placing them with interested companies in the future is easier.

Challenges

• There is a much smaller overall talent pool so you have to work hard on networking.
• Finding the right hire is complex and longer searches mean higher service costs.

How to Start a Staffing Agency?

Getting a staffing agency off the ground requires strategic vision, meticulous planning, and financial prudence. You need a comprehensive business plan before you enter the market.

Here’s how you can get started in 5 simple steps:

1. Conduct market analysis.
2. Profile your competitors.
3. Make a financial plan.
4. Define what makes you stand out.
5. Plan your expansion.

Let’s get into this.

Conduct Market Analysis

The key goal of market analysis is to size and validate the true revenue potential of your staffing agency. Here’s a concise list of pointers to get started:

• First, determine where geographically you will operate — locally or nationally. This influences how you source candidates and acquire customers.
• Next, research job categories and sectors with strong hiring demand and growth trends. Leverage national labor data on occupational salaries, openings, and projected expansion.
• Choose niches where the volume of hireable talent aligns with hiring needs. Take nurses for example — high demand but not enough supply.
• Factor in the average salaries for the roles you plan to place candidates into, blending permanent, temporary, and contract levels. Such an approach is especially important if you choose to go into contingency recruiting. It will give you an even better idea of the financial promise in each industry.
• Finally, talk to HR contacts at target companies to confirm budgets they allocate towards external staffing firms. This helps you name prices and negotiate with clients.

This way, you’ve identified where you’ll practice (and effectively market) your services, who your target audience is, how many candidates are available, where to find them, what earning potential, and what the realistic budget for external recruiting is for your target clients.

Tip: Be sure to validate there are indeed qualified candidates available to meet demand — verify your supply. If the profit margin is good but the number of candidates is low, scaling may get difficult. It may also signal a deeper issue, for example, the realistic number of companies hiring in these markets is lower, even if estimates are higher.

Profile Your Competitors

Do the following to identify your existing competitor's strengths and weaknesses:

• Detail your competitor’s value propositions and fee structures.
• Look at the years they’ve spent in business, specializations, and client bases.

With the number of intuitive staffing tools in the market, your competition exists beyond external staffing partners. Businesses are leveraging internal mobility programs and investing more in HR technology-based recruiting.

Use a superior tool to manage your pipelines and understand how your services can do better than internal systems, so you can pitch this differentiation to your clients.

Recruiting CRM is an all-in-one recruitment platform tailored for agencies to manage clients, candidates, hiring workflows, communications, and analytics in one unified system across their search and placement services. Such an approach could give you the edge you need.

Tip: Understanding how hiring managers weigh your services against alternatives is crucial. Use a good tool to combine speed with your expertise.

Make a Financial Plan

Found your financial assumptions and projections in market realities, not aspirational hope:

• Build out a five-year profit and loss, detailing billable pay rates to clients needed to cover costs with sufficient margin left to run your operation.
• Analyze gross margin at talent fulfillment level; target 20%+ to cover business infrastructure.
• Factor in costs for office space, your in-house recruiting team’s compensation, hiring technology, marketing, and advertising budgets.

The more infrastructure you need to deliver a service, the less margin you earn per placement. If you’re assuming you can charge more to compensate for this, can you pitch these higher-priced packages to clients successfully or will they go with cheaper options? Evaluate that.

Tip: Conservative assumptions are key when it comes to measuring income. The reverse is true when measuring expenses.

Define What Makes You Stand Out

What unique staffing services, technologies, or pricing models will you provide? Some examples include dedicated account management, extensive compliance guarantees, and workforce planning analytics.

Detail what you excel at, like proprietary screening assessments or specialized vertical expertise.

Think of what you can offer clients as add-ons that cost you very little. If you’re using a hiring tool, does it have built-in reporting that can give you crucial metrics like time-to-hire and cost-per-hire? Maybe you could offer useful information like this to your customers as an added service.

Tip: Avoid “me-too” services already widely offered by other agencies, as you’ll have less differentiation and more competitors.

Plan Your Expansion

As a new staffing agency, you need a phased plan to roll out services and target initial customers.

Describe your ideal first customers in terms of size, maturity stage, and industry sector. Initially, pursue industries where you have network strength.

Then, understand how you want to grow, and how to plan your business financials to support that growth.

To do this well, you must decide the mix of placements based on your expertise and proposed profit margins. For example, permanent placement has higher margins but moves slower. Temp staffing has lower margins but deals are closed faster.

Tip: Balance short-term cash flows with a longer-term profit focus to grow without running into problems.

What Are the Legal Requirements for Starting a Staffing Agency?

We’ve created a legal version of starting a staffing agency checklist.

Registering the Staffing Business

The first step on the list of legal requirements for starting a staffing agency is to register your staffing agency. Do this to protect yourself and your employees, before you start operations.

• Register your business name and establish a proper legal business structure (LLC, corporation, etc.).
• Obtain necessary licenses and tax registrations with state revenue departments and municipalities.
• Purchase requisite insurance policies like general business liability, errors and omissions, and worker's compensation.

Understanding Employment Laws

Areas like safety standards, discrimination, wage requirements, and healthcare all have important regulations you must comply with. Identify and thoroughly understand key laws to prepare to meet diverse compliance obligations.

• Research federal, state, and local employment laws covering areas like safety, discrimination, wages, and healthcare.
• Key regulations include FLSA, OSHA, FMLA, ADA, and EEOC rules which must be thoroughly understood.
• Develop internal policies and processes to ensure ongoing legal compliance.

Establishing Compliance Best Practices

You need to go beyond basic legal requirements to further reduce agency risks. This involves rigorous verification procedures, comprehensive background checks, and formal process documentation.

You also need to provide equal opportunity and harassment prevention training to establish a culture of compliance among your staff.

• Maintain rigorous I-9 employment eligibility verification procedures.
• Conduct comprehensive background checks on all candidates.
• Document detailed processes for candidate sourcing, vetting, and staffing to client sites.
• Institute mandatory equal opportunity and anti-harassment training for all agency staff.

Formalizing Client and Candidate Contracts

Well-structured contracts will protect your interests and outline what the client expects in the same document. Both parties get more security this way and can refer to the document when in doubt.

• Create master services agreements covering payment terms, staffing process, and compliance responsibility.
• Enforce confidentiality and non-solicitation agreements to protect business interests.
• Formalize temp/contract roles with candidates through detailed employment contracts stating rates, assignments, and terms.

How Do Staffing Agencies Make Money?

Staffing agencies primarily make money through three main pricing models.

Flat Fee Staffing

In this model, the agency charges a fixed amount as payment for recruiting workers, and this fee is paid before the staffing agency starts sourcing candidates.

The flat fee is determined by industry standards and business logistics, rather than the employee's skill set, experience, or salary.

Retainer

The staffing agency receives payment as part of the employer's company on a long-term or retainer basis.

This works well for startups that cannot afford an internal recruiting team or companies that don’t have the time to directly hire candidates but still want a steady stream of good-quality candidates.

Percent of Salary

In this payment model, the staffing agency earns money from a percentage of the employee's first annual salary, known as a markup.

The markup ranges between is added to the billed rate. For example, if an employee's annual salary is $60k and the markup is 30%, the employer pays a total of $78k, with $60k going to the employee and $18k to the staffing agency.

In most cases, the employer who contracts the services of a staffing agency pays the staffing fees, not the employee.

How Do Staffing Agencies Build a Brand?

Regardless of what kind of staffing agency you want to run, and who your clients are— you’re bound to have competition. Make choosing you a no-brainer with a strong online presence.

Establish a Strong Brand Foundation

Determine your specialization. Will you provide generalist recruiting or focus on a niche? Which industry should you cater to? Will you offer a blend of services, or go with one of two, temporary staffing and direct placement? Establishing a niche is the first step to differentiation.

You also need to intimately understand your ideal customer profile — are you targeting small emerging companies with rapid hiring needs or mature enterprises seeking a project-based partnership? Define your audience persona to know who you’re speaking to, and how to frame your messaging and positioning.

An emotional brand platform based on the primary values you represent will resonate strongly with recruiting stakeholders. So will emphasize relatable themes like trust, transparency, and forming meaningful connections.

Build an Informative Website

Your website allows prospects to directly engage and learn more. Simplicity and clarity are vital here, with:

• Ease of navigation
• Digestible content
• Prominent calls to action.

The homepage should instantly communicate your capabilities, specializations, results, and values. Showcase client logos, testimonials, and case studies to signal marketplace trust. Link to your social media profiles, blog, and events to make it easy to connect with you.

Make applying for jobs or contacting your recruiting specialists seamless through web-based forms and information captures. Provide convenient contact options like phone, email, and even digital chat.

Get the fundamentals right — brand, marketing, and web presence, and enhance it with the right recruiting software.

How Do Staffing Agencies Market Their Services?

With your brand identity established, you need to understand how to market your staffing agency. A 360-degree marketing plan like this one will support sustaining awareness and interest.

• Digital advertising to target decision-makers on platforms like LinkedIn, focusing on companies who are actively searching for candidates.
• PR support to secure feature profiles in industry publications lends credibility. Strategically optimizing listings on aggregator sites and niche job boards expands organic reach.
• Content marketing to boost thought leadership through bylined articles and blogs.
• Hosting key industry networking events to foster community.

This integrated strategy blends inbound and outbound touchpoints. Audiences will repeatedly see your differentiating brand assets and messages. This consistency will strengthen awareness and affinity over time.

How Do Staffing Agencies Hire Employees and Build a Qualified Candidate Pool?

Here’s a list of people you need to hire when you start a staffing agency. Remember that you will not need so many people when you are just starting.

• Business Development Managers build client relationships, understand needs, match services, and negotiate contracts.
• Recruiters source, qualify, and pitch candidates on roles based on specialty.
• Account Managers handle day-to-day requirements, address issues, and ensure satisfaction.
• Payroll/Compliance Experts manage employee paperwork, taxes, and adherence checks.
• IT Specialists maintain software, databases, reporting systems, and data security.
• Operations Manager leads workflows, and productivity, and monitors metrics from the end-to-end process.

Staffing agencies find a broad list of candidates and then screen them for key criteria. Here’s a list of ways to find a steady stream of candidates:

• Specialized job boards and niche community sites to access hard-to-reach technical or industry experts.
• Engage external recruitment marketing agencies to deploy targeted digital campaigns when needed.
• Nurture campus recruiter relationships to tap upcoming graduate talent pipelines.
• Leverage talent mapping engines that structurally crawl the web to automatically source candidate profiles.
• Build and incentivize employee referral programs to expand candidate networks.
• Use LinkedIn Recruiter and Boolean search techniques to filter with precision.
• Send trigger-based email campaigns when new relevant openings arise.

If the goal is to be known for how well you match candidates to companies, you need a structured screening process to refine your candidate pool. Here are a few ways to go about that.

• Conduct customized skills testing aligned to specialty requirements.
• Ask for thorough background checks and eligibility verification to meet client mandates.
• Use behavioral and motivational assessments to provide cultural and motivational insights.
• Evaluate cultural add through structured conversations.

How do Staffing Agencies Scale?

You should have a phased plan for your staffing agency growth strategy.

Start by going deeper into related talent areas where your team has experience. For example, if you currently recruit nurses, expand into pharmacy and clinical trial roles. This builds on your existing healthcare clients and networks.

When business in your initial location is steady, carefully add other geographical sites. Prioritize expanding to nearby regions first so you can monitor things closely as you scale.

Build on your existing offerings by adding complementary services like diversity recruiting programs or workforce planning strategies for clients. This helps provide more value to current customers and can be easily executed with a tool that offers DEI reporting. This method of scaling also works faster than recruiting from scratch for a new client.

Eventually, you may look to acquire competitors to get into new skill areas or combine forces for greater visibility.

The key is balancing growth with making sure service quality keeps meeting customer expectations.

Ready to scale recruiting?

As outlined in this guide, the first step to starting a staffing agency is to identify your niche. This is the trickiest part unless you have years of recruiting experience and know where the money is.

Even so, you may not see success or be able to scale an agency in the spaces that were profitable for you as a lone recruiter. Your niche is not permanent, you may go from generalist to specialist or switch industries if you find better opportunities elsewhere.

Once you have your niche, building your brand should be the next priority. Find your audience, and understand what resonates with them.

Build a digital and human foundation next. Use the right recruiting software for manual tasks, and hire the right people. Build a system that makes it easy for you to think bigger, instead of being bogged down with operational tedium.

While you have to balance many complex variables, apply the information in this guide to effectively plan, execute, and sustain staffing agency success over the long term.

Whether it’s managing operations smoothly or easily curating add-on services that clients are willing to pay more for, Recruiting CRM is the best software for staffing agencies who want to scale fast.