How to start a recruitment agency

Enjoy matching potential employees with their dream jobs? Discover how to start and successfully run your own recruitment agency.

Recruitment is a growing industry in the UK, thanks in part to a buoyant job market. Research conducted by CRM company Bullhorn found that annual revenues for recruitment agencies have increased significantly each year since 2011, with growth forecast to continue rising by 10% year-on-year.

It’s commercially attractive, too, generating total revenues of around £31.5billion each year and placing over 634,000 people into permanent roles in 2014/15. But with more than 100,000 people working in recruitment services, there’s considerable competition for any recruitment agency start-up.

We explore the skills and mindset needed to become a successful recruiter, and even how to start a recruitment agency from home, along with the steps you need to take to set up your own recruitment agency.

What is a recruitment agency?

Recruitment companies are employment match-makers – placing workers into vacant roles, saving a client company the hassle and time spent finding suitable candidates themselves.

Running a recruitment company involves seeking out candidates through advertising, networking and referrals, then screening and interviewing candidates before putting them forward for a client’s consideration.

Recruitment agencies are used by all types of company from small businesses to global corporations and at all job levels from director placements to temporary cover for receptionists. They also work across all employment fields from healthcare workers and supply teachers through web developers and seasonal farm labour.

If you’ve a bias towards human resources, sales experience, bags of energy and are brilliant at networking, starting a recruitment agency could be a good way to become your own boss.

Should you start a recruitment agency?

Starting a recruitment agency from scratch is challenging. Most successful recruitment companies are started either by recruitment professionals with experience working for other agencies, or someone with lots of industry know-how and contacts. If you’re starting out on your own, check that your existing recruitment employer doesn’t have any contractual obligations about not working with their existing clients.

Recruitment demands a wide set of skills – primarily sales experience and expertise – coupled with good HR understanding, and the ability to deal with both clients and prospective job candidates.

Watch this: If you aren’t looking to launch a recruitment agency, but do need to hire staff for your own start up business, the Harvard Innovation Lab has some useful tips and advice:

You don’t need any specific training or qualifications to set up a recruitment business. If you’ve not worked in recruitment before, an accredited course will provide a useful overview of the industry and teach you specifics such as recruitment interview techniques. The REC offers a wide range of training covering all aspects of the business.

Pin down why you want to start a recruitment business. Most-cited examples include the ability to be your own boss, work hours that suit your lifestyle, bring a different type of customer service to the industry or having spotted a gap in the market. You’ll need an entrepreneurial mindset, dedication, stamina and resilience. Expect to work during evenings and at weekends, as you won’t be able to interview many potential candidates during office hours.

Decide the nature of your recruitment agency

The first step in setting up a successful recruitment agency is to decide how you’ll operate, and the industry you’ll focus on. Traditional recruitment agencies operated as a bricks-and-mortar business, with high street premises listing job vacancies. Today’s recruitment start ups are increasingly online first – creating interactive websites that list vacancies, allows candidates to create CVs and send them to prospective employers. Starting online means lower start-up costs, but attracting online traffic can be highly competitive, and you’ll still need somewhere to interview staff and meet clients.

Decide which area of an industry you’ll focus on, such as supply teachers, media professionals or off-shore engineers. Setting up as a recruitment agency operating in specialist field can give your start-up an advantage over larger, more generalist recruitment agencies that can struggle without in-depth industry knowledge when trying to match candidates with jobs. It lets you develop relationships with potential client companies and target marketing at industry professionals seeking a job in that particular industry.

As an alternative to starting from scratch, consider buying into a recruitment franchise. This is a way to get up and running quickly with an established brand known to both clients and candidates. Franchises start at around £25,000 – with an additional capital sum required – and typically provide marketing materials, advertising and recruitment software. Learn more about how franchises work.

Recruitment agency start up costs

Setting up a recruitment agency doesn’t have to involve lots of up front costs, and you can set up a recruitment agency from home. But you will need enough money to see you through the inevitable lean first months. Costs include:

  • Website – You’ll need a specialist recruitment website to advertise your jobs, including recruitment database capabilities. You can find an off-the-shelf recruitment website with decent functionality for around £1,000, with costs rising depending on how bespoke you want the site.
  • CV databases –  Used by online ‘job boards’ such as Monster and Total, these allow people to upload their CVs for potential employers to view. Recruitment firms can access these CVs for a fee: expect to pay anything from £200 to £5,000 per month. You can also pay to advertise your vacancies to the job board’s large audience. Ask for a free trial with a job board before negotiating monthly fees.
  • Equipment –  Computers, a broadband connection, mobile phones and recruitment software will lead the equipment list. Some recruitment software is available online, such as Zoho Recruit, for around £30 with free trials available. Expect to pay around £40 per month for mobile and broadband contracts.
  • Premises –  Starting a recruitment agency from home means you can avoid this initial cost, though you’ll need office space as you grow and take on staff, interview candidates and meet clients. A serviced office space can provide a good way to get started for around £400 per month in London and around £200 per month elsewhere.

Looking for office space for your start up? Read our free guide to renting business premises.

  • Membership fees and subscriptions – Factor in subscriptions such as membership of the REC and LinkedIn Recruiter, as they can help boost credibility, knowledge and contacts.
  • Insurance – You’ll need professional indemnity insurance to protect you against negligence claims. If candidates visit your office or go out to meet clients, it’s worth considering public liability cover for your business. If you employ staff, you must have Employers Liability to cover you should an employee be injured because of the work they do for you.

Need to get the right insurance? Here’s how to choose the right business insurance for your start up.

Setting recruitment fees and agency pricing

Recruitment companies are usually paid a percentage of the job’s salary or a regular retainer for larger clients.

Prices are based on the level of the job role and whether it is permanent or temporary. With permanent positions, most recruiters take a percentage of the worker’s annual salary, which increases in line with the salary. For more junior roles, this percentage may be 10% – 15% of the yearly salary, increasing to a 20% to 25% for most job roles. High-end niche and executive recruiters can charge 30% or more for jobs offering six or seven-figure salaries.

Some online recruitment agencies charge towards a flat fee for filling client vacancies. This approach can be popular with clients, but it will eat into the margins you get for higher salaried vacancies.

To work out your firm’s charges, consider how much you need to spend on advertising, networking, time spent liaising with the client, filtering CVs, and interviewing candidates. You won’t get paid until you place a candidate in a position, so cash flow can be critical in the early days.

Understand recruitment rules and regulations

Recruitment is a heavily regulated industry, and you’ll need keep up to date with the latest legislation and follow employment guidelines carefully.

The main piece of legislation governing industry is the Employment Agencies Act 1973. It covers what you can charge for; how you advertise a vacancy making it clear you are an agency; how you deal with young or overseas candidates, the background and legal checks you must make about a candidate, and what information you can disclose to both the client and candidate. Learn more about the Employment Agencies Act at gov.uk.

Create a recruitment business plan

Before you take the plunge and launch a recruitment business, don’t start without a business plan and enough working capital to get you through the first six months of trading.

When running your company, remember that your time is valuable, so be sure to spend it looking for clients and candidates, not wasted on tinkering with website design, bookkeeping or other distractions. Hiring specialist help can be useful for tasks such as accounting, IT and office administration.

Make sure that you register your new business correctly with HMRC and Companies House. Consider hiring an accountant to help with tax compliance and filing tax returns and annual accounts. 

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