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10 min read

How to start a recruitment agency

People are often cited as the most valuable part of a business, and that’s why recruitment agencies provide such an important service seeking out and placing candidates for job roles. With industry turnover increasing year on year, even with Brexit uncertainty, the market demand shows no sign of waning. So, if you’re looking to start your own recruitment agency business, what do you need to know?

What is a recruitment agency?

We’re all familiar with the general concept of a recruitment agency – matching jobseekers to employers. It sounds simple but in reality, recruitment involves specialist research and networking skills, patience and a lot of hard work to ensure new hire benefits both parties.  

What’s also often overlooked is how recruitment agencies act as invaluable sources of market intelligence for both candidates and companies. They serve as a great source of career information, while helping companies devise job descriptions to ensure they’re getting exactly what their business needs from the hire. It’s an industry that takes on a large amount of responsibility – from shaping people’s livelihoods to steering business success with people placement.

Why start a recruitment agency?

It’s clear there’s a strong requirement for recruitment agencies. The total industry turnover increased by 11% year-on-year in 2017-18 (Source: The Recruitment & Employment Confederation), reaching a record £35.7bn. There was also a 10% rise in the number of recruitment enterprises, which is pretty impressive given the current political and economic uncertainty.

One of the biggest reasons for using a recruitment agency is time. Millennials are likely to jump from job-to-job more frequently than past generations, using agencies as a quick way to discover exciting new roles that fit with their career plan. For employers, finding quality candidates can require a substantial amount of time that they don’t have due to other business responsibilities. Specialist research skills, a meticulous eye for analysing CVs and access to resources and networks are all additional benefits.

Be prepared to work long hours to get your agency off the ground. Many candidates will only be available outside of work hours so you’ll need to be mindful that calls and meeting times will need to be flexible.

Which sectors should I specialise in?

Businesses across all sectors require quality employees to make them a success, so when it comes to choosing the sectors your recruitment agency specialises in, the options are vast. Here are some of the main sectors:

  • Consumer
  • Pharmaceuticals
  • Industry
  • Health
  • Real estate
  • Financial services
  • Professional services
  • Hospitality & leisure
  • Property & construction
  • Technology
  • Media
  • Care
  • Retail
  • Banking
  • Oil and gas
  • Telecommunications

Focusing on one or a handful of sectors will give your agency a specialism, which can attract clients who are looking for candidates with specific skills and experience. It will also give your agency an identity amongst competitors, helping with branding and ensuring you don’t spread yourself too thin.

You might want to also consider looking at a specific functional focus for your agency, such as:

  • Board/CEO/Non-executive Directors
  • Finance
  • Marketing
  • HR
  • Technology
  • Sales
  • Legal
  • Operations
  • Product Management
  • Data Management/Information Management

“Having a clear niche is really important for building a strong brand, as recruitment agencies’ reputations are built on their knowledge of particular markets and how well they’re networked within them. Their worth is also measured by how well placed they are to advise clients on hiring for specific sectors and/or functions. My best advice would be to stick with what you know”

Gemma Hale, Digital Recruiter at The Up Group

Competition is also a key consideration – are there any sectors that have less competition from other agencies? Or are there any sectors where you think you can offer a better service than your competition?

How do I price my services?

The recruitment industry is extremely competitive, so pricing tends to be a pretty creative exercise. While it’s important to have a basic structure, it’s wise to be flexible to allow room for negotiation to secure clients. This is particularly important when you’re starting up and trying to build a reputation. The more clients on your books, the more opportunity for placements you’ll have. The more placements you make, the quicker your reputation will grow.

You can decide to work on a success fee ‘contingent’ basis, or a ‘retained’ one.

 

Contingent model

If you become a contingent firm, you usually won’t get paid until your client makes the hire. This is a common structure for firms making hires at junior through to middle management level. The end fee is usually a percentage of the salary. “Percentages vary wildly and tend to go up with the reputation of the firm,” explains Gemma. “Firms working on high volumes of hires e.g. very junior roles, tend to be able to charge less. Broadly, the contingent market can vary as much as 10-30% of salary depending on the firm’s focus and reputation.”

It’s worth noting that this pricing structure puts all the risk on the agency rather than the client, as in most cases the client will engage multiple contingent firms and let them race to make the hire.

 

Retained model

Retained firms traditionally charge clients their fee in three stages:

  1. On beginning the search
  2. After the delivery of a candidate shortlist
  3. On placement

Typically this fee is also a percentage of the candidate’s salary and is often billed in equal thirds. This model allows the recruitment firm to share the risk with the client. Retained search firms tend to be more focused on senior level hires (Director through to C-suite and board level). Their fees vary in line with the level of seniority of the hire, though percentages tend to start at around 33%. Again, retained firms will negotiate in order to secure a search, so be creative with the billing process or fee if required. For example, some clients prefer a fixed fee rather than a salary percentage so be mindful of the need to create different options for clients that you really want to work with.

Note: There are countless iterations of these two models so be mindful of the profit you need to make to cover your business cost, while making a long-term profit. As a new agency, you will need to start lower and work your way up in regard to fees.

Earn Your Fee

Clients are willing to pay for the right candidate so the more thorough you are as an agency, the more likely you will be to succeed with a placement and earn your fee. Ensure your team receives the best training and everyone is on the same page in regards to your fee structure and any flexibility within it. If your agency retains a consistent quality of service, it’s more likely to go from strength to strength as placements rise and your reputation grows.

What laws and regulations are there?

You don’t need any official training or qualifications to set up your own recruitment agency. However, as with any craft, it’s worth attending some training sessions to get you off to the best start (especially if you have no previous experience). The REC provides training for all levels, covering essential skills, legal training, sales techniques and more.

Read the REC’s full A-Z of training courses

There are, however, some extremely important laws and regulations you must be aware of. For example, what information you’re allowed to share between the jobseeker and employer, anti-discrimination, maternity pay, etc.

The Chartered Institute of Personnel and Development (CIPD) is a useful resource when ensuring your agency acts within the law. (Please note some of its content is members-only access.)  

Read through the CIPD’s recruitment guidance

There is no single Act governing recruitment and selection, but there are a number of Acts that deal with the employment relationship that have an impact on pre-employment issues. A significant example is the Equality Act 2010, which makes it unlawful for employers to discriminate against job applicants (and existing workers) because of a ‘protected characteristic’, namely:

  • Age
  • Disability
  • Gender reassignment
  • Race
  • Religion or belief
  • Sex
  • Sexual orientation
  • Marriage and civil partnership
  • Pregnancy and maternity

Read the full list of legislation governing the law on recruitment in the UK

 

Employment law

It’s important you’re aware of and comply with Employment Law, such as:

  • New and amended statutes and statutory rates
  • Recruitment legal requirements, checks and processes
  • Terms and conditions of employment
  • Data protection
  • Holidays
  • Working hours and pay
  • Health and safety regulations
  • Maternity and parental rights
  • Discrimination
  • Discipline, grievance and dismissal procedures
  • Whistleblowing
  • Employment tribunals
  • TUPE
  • Redundancy

Read more about employment law

One of the most important Acts to be aware of is the Employment Agencies Act 1973, which regulates the conduct of employment agencies that recruit and manage temporary and permanent labour. The Act covers areas such as what information you can disclose to the client and worker, how you advertise the job, how you deal with candidates under 18, how you deal with employing candidates abroad, and more.

New regulations were introduced under the Conduct of Employment Agencies and Employment Businesses Regulations 2003, which applies to employment agencies that introduce workers to a client who then contract directly with the worker (e.g. recruitment agencies) and employment businesses that enter into contracts with workers and supply their services to a client e.g. agency companies.

 

General Data Protection Regulator (GDPR)

A hot topic in recent years, this is important to be aware of if you’re starting a recruitment agency as you’ll be holding personal data of individuals, as well as sensitive data on clients and their businesses. You absolutely can’t afford to get this wrong. Be mindful if you’re recruiting internationally, as data protection laws can vary country to country e.g. did you know it’s illegal to ask a candidate for their salary details in several cities and states in the US?

 

Code of Professional Practice

 The REC has established a Code of Professional Practice to ensure their members conduct their businesses ethically, to the highest standards and promote good practice.

Download the REC’s Code of Professional Practice

What costs are involved?

There are many varying factors that can affect start-up costs – from premise location to the number of staff – however, this list should give you some elements to consider when forecasting costs.

 

The basics

In the beginning, starting up your own recruitment agency can be a pretty affordable business to run. All you essentially need is a phone, computer and internet access.

 

Premises

Unless completely necessary, it would be wise to avoid committing to premises in the very early stages of starting up your agency if you have no staff and can work remotely with internet access. If essential, renting flexible office or coworking spaces is a popular option for startups as opposed to a costly conventional leased space. The average per person monthly cost for renting flexible office space in the UK’s top cities in 2018 was £650-1500 in London, £350-500 in Bristol, £200-450 in Leeds, £300-400 in Manchester, £250-450 in Birmingham, £250-550 in Edinburgh and £150-£300 in Liverpool (Source: Instant Offices).

It’s important to meet face-to-face with your clients to firmly grasp who they are and what they’re looking for. A meeting place in your premises is useful but not essential in the early days. For example, you can use public places for meetings such as coffee shops, hotels, WeWork spaces, etc. Most client meetings would likely happen at the client’s offices.

 

Graphic designer at work

Branding and website

Clients need to trust that you are professional and qualified, so your agency will need a name and logo that reflects this. Start with Companies House Name Checker then check a website domain is available for it (GoDaddy domain search is good for this). Once you’re happy with your name, approach a handful of designers/logo companies for a quote. Don’t scrimp on this, as your logo is an important investment.

When it comes to your building your website, keep it simple at the beginning; you can always add snazzy features down the line. Consider Squarespace – a DIY website builder. It’s extremely user-friendly and offers end-to-end service. Choose from pre-built templates and utilise the drag-and-drop website features within them. They’re automatically mobile-friendly and you can set up hosting, email addresses, etc. all within the software. Squarespace’s Help Center and Knowledge Base will help troubleshoot anything for you quickly, 24/7. Analytics are also built in, which can inform next steps such as search engine optimisation and how to shape your content moving forward. This approach will reduce your startup costs and will give you entire control over your website and content. You can start a free trial if you’d like to explore the software before investing. It will cost you £15 per month, billed annually or £21 month-to-month, plus applicable taxes. 

Find out more about Squarespace

If you’re not keen on creating and managing a website yourself, professional costs can vary from £400-£10,000 depending on requirements, so it’s best to consider more affordable options to begin with before your business takes off.

 

Software on laptop

Software

The right software will help reduce your time spent on processes and administrative tasks.

You’ll need a database to store candidate contact details with a tagging system so you can easily search through them. You’ll also need it for managing your assignments. Popular options include cloud-based executive search software FileFinder, Invenias and Cluen. These systems can offer benefits such as saving you time on data entry, providing automation, capturing your communications, managing GDPR, executing reports and more. Many generate client-ready reports, as well as web portals that clients can access to view the progress of a search. This can be crucial to the client management process. Clients are growing to expect this level of transparency as part of the service. You can request free demos if you’re not sure which one to go for.

LinkedIn Recruiter is another platform for finding, connecting with and managing candidates, however, there are caveats as you don’t have the same control or ownership over the data, as you’re not creating records yourself. With a member network of 560m+, 75% of recruiters have said they’re more successful with this tool. You can opt for Recruiter Lite (search, filter and contact LinkedIn members) a Recruiter account (access to the entire LinkedIn network) or Recruiter Professional Services (slightly fewer features than the Recruiter package).

Find out more about LinkedIn Recruiter

Accounting software such as Xero and Sage will also help organise and schedule important financial tasks such as payments, payroll and taxes.

 

Social media apps on iPhone

Marketing

If you want to get your brand out there, you’ll need to consider allocating some budget to marketing. Before you spend any money, it’s worth thinking about your overall business marketing strategy and your specific tactics (ie your marketing plan). The key to success is working out who you’re targeting and where you can find them online (and in some cases, offline). For example, digital and social marketing will offer you a range of highly targeted and measurable online tactics. But, you might find more traditional tactics such as print advertisements are also effective at raising brand awareness. Adopt a test and refine method to quickly understand your most effective channels.

 

Subscriptions

Depending on your sector focus, you’ll want to sign up to the associated news sources to stay up-to-date on any developments. For example, if your niche is technology, technology news sites such as Techcrunch offer free membership, while the Financial Times covers most sectors and offers some of the most accurate and reliable financial market information, helping you stay aware of the emerging trends in your industry. An FT subscription starts from £3.99 a week, but there are other packages available that might better fit your business requirements. If you’re unsure what to subscribe to, speak to someone you know who works in your niche sector and they can provide a good steer.

 

Staff

A big financial commitment so it’s worth considering whether you need to hire staff at the very beginning. An average recruiter salary is around £25k (Source: PayScale).

 

Equipment

In the beginning, your equipment essentials will be a laptop and a phone. The more staff you have, the more equipment you’ll need so be mindful of this when looking to expand your team.

Do I need insurance?

You must have an Employers’ Liability Insurance policy of up to £5m if you have one or more employees. If you’re not employing anyone, you don’t need this. This is the only insurance every business needs by law. 

Depending on the nature or size of your business, it would be worth considering motor insurance (if your business operates a vehicle/s), Professional Indemnity Insurance (business insurance, particularly if you provide a service or offer advice to clients) and Public Liability Insurance (protection against compensation claims so it’s important if you regularly interact with customers).

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