Staffing agencies play a crucial role by providing businesses with the talent they need to succeed. They are also responsible for helping job seekers find employment. In this sense, they satisfy both ends of the talent acquisition transaction.
But are staffing agencies profitable?
Like with most businesses the answer is – Yes, they can be. But the more we delve into the answer, the more we realize that it is not that straightforward because there are many factors that affect the profitability of a staffing agency.
Some of these factors include the type of staffing agency, its size, its geographical location, the industries it serves, and the types of positions it places.
In addition, how well the staffing agency is managed also has a significant impact on profitability.
In this article, we will review the top factors which affect the profitability of a staffing agency and we’ll discuss what an agency’s management can do to maximize its chances of having a successful staffing agency.
When Are Staffing Agencies Profitable? – Top Factors
The top factors that affect the profitability of a staffing agency are:
- Type of Staffing Agency
- Size of the Staffing Agency
- Geographies of Operation
- Industries Served
- Types of Positions Placed
- Additional Services Provided (eg. Training, Payrolling)
- How Well the Staffing Agency is Managed
1. Type of Staffing Agency
The first and most important factor that affects profitability is the type of staffing agency. Broadly speaking, there are two main types of agencies – those that provide temporary workers and those that provide permanent placement workers.
Each type has its own advantages and disadvantages when it comes to profitability.
With a staffing agency for temp workers, the agency is typically paid a fee for each worker that is placed. The big advantage of this type of agency is that when there is a large churn and a regular need for more temp workers, the agency can continuously make money.
The agency could also charge additional fees for things like training, transportation, uniforms, and other necessary supplies because many companies would prefer to get temp workers who are able to perform their duties from Day 1.
On the other hand, a staffing agency for permanent placement workers is typically paid a fee that is a percentage of the worker’s first-year salary.
The advantage of this type of agency is that they can make a lot more money per worker placed.
However, the disadvantage is that there are fewer opportunities to place such candidates because companies will often run recruiting campaigns themselves or use an internal HR department to do so.
2. The Size of the Staffing Agency
The size of the staffing agency is also an important factor. Smaller agencies typically have a harder time being profitable because they don’t have the economies of scale that larger agencies enjoy.
However, smaller boutique staffing agencies that specialize in specific niches can be very profitable because they can charge a premium for their services.
Larger staffing agencies have the advantage of being able to spread their overhead costs across more workers. They also tend to have better name recognition and therefore can attract more clients.
The disadvantage of large staffing agencies is that they often have a harder time being nimble and adapting to changes in the market.
3. Geographies of Operation
Certain geographies have a larger churn of employees and so have more demand for new employees. Similarly, the economies of certain countries are growing faster than others and so these geographies have more hiring opportunities than others.
An agency that is located in a geography where there is a constant need for employees – temp or permanent – is more likely to be profitable than an agency located in a geography with companies with little employee turnover.
An agency that is able to serve multiple geographies is also more likely to be profitable because it can tap into different markets and find the one that is most advantageous for its business. It can also counter the bust in one economy with the boom in another.
4. Industries Served
Just as a staffing agency’s profitability varies from geographic region to geographic region, it varies too from industry to industry.
Agencies that serve high-demand industries such as healthcare, information technology, and engineering typically have an easier time being profitable than those that serve industries with low demand for new staff.
Likewise, staffing agencies that specialize in certain industries or even in a niche within an industry can charge premium rates and can be highly profitable.
5. Types of Positions Placed
The types of positions placed by the staffing agency are another important factor affecting profitability.
Agencies that place engineers, researchers, or other highly skilled professionals are typically more profitable than those that place entry-level or unskilled workers.
This is because the fees charged for placing these types of workers are much higher as they are linked to the employee’s salary and highly skilled professionals can command a high salary.
Similarly, staffing agencies that specialize in upper management or executive placements can also be highly profitable because they are able to command high fees.
6. Additional Services Provided
Staffing agencies have the opportunity of providing additional services like outplacement services, payroll processing, and benefits administration.
The advantage of providing these additional services is that it can lead to higher profits. The disadvantage is that it requires the staffing agency to have a more robust infrastructure and staff in place which can be costly.
But agencies that can provide this additional service will be looked upon by their customers less as headhunters and more like business partners, leading to a more trusting and long-lasting relationship.
7. How Well the Staffing Agency is Managed
Like with any business, how well the staffing agency is managed will have a direct effect on its profitability.
An efficiently run agency with a good sales team, low overhead costs, and high billable hours is more likely to be profitable than an inefficiently run agency.
The best way to ensure that your staffing agency is being run efficiently is to put systems and processes in place and to hire good people.
Conclusion
In conclusion, a staffing agency can definitely become a profitable business but it can take time and can be a hard slog to get there.
There are many factors that affect a staffing agency’s profitability. The most important ones are the size of the agency, the geographies served, the industries served, the type of positions placed, and how well the agency is managed.
Successful staffing agencies excel at many of these factors and so for your agency, you will need to decide which factors matter the most and which factors can you most effectively manage to grow your business and make it a success.
