So, you’ve got the message. Your recruitment agency is a lot more resilient and attractive to investors if it has a serious temp/contract capability.
Interestingly, about 75% of start-up recruitment firms start – and stay – largely perm placement oriented.
And I’d like to suggest that it’s no coincidence that 90% of recruitment firms stay with fewer than 10 employees.
If you are a perm recruiter, starting up on your own looks really attractive. Your costs are relatively low (as long as you are sensible), you can trade on your network and the placement fees look great.
Except… perm recruitment does not provide a sustainable income. Even with exclusive job orders, your client or candidate can withdraw.
It’s hard to grow because the dial goes back to zero every month. And when things go wrong, they go wrong really quickly. Just look at how permanent jobs have dried up overnight in most sectors since CV-19 started to spread.
I hope I don’t need to rehearse the arguments for having a strong temp/contract offering in your business. We should all know that it:
a) Makes you more attractive to potential acquirers and investors
b) Provides a sustainable income, often visible for 12 months, which continues even if a recruiter leaves
c) Allows you to budget and plan
d) In the medium term, produces more profit per head of staff than perm business
e) Is not at the mercy of demands for refunds in circumstances (capricious clients and candidates, anyone?) beyond your control
So why don’t more business owners start-up as temp/contract businesses? And what mistakes do they often make?
Here are my seven big mistakes you must avoid, whatever your market sector.
1. It’s too complicated.
Yes, it is more complex than permanent recruitment. But it accounts for 91% of the revenues in the UK recruitment industry, so it’s worth it.
If you don’t do it, you are leaving a door open to your competitors to offer both services to your clients and push you out. And end-hirers really can’t do it themselves.
2. The need for finance.
Right from the off, a temp business really needs a finance facility. And – although it has probably never been easier to get funding for such businesses, the finance-provider does want to do due diligence.
I’m afraid to say that a lot of recruiters refuse to accept this and prefer to see what they can get away with, “winging it” in regard to paying workers.
So they can’t plan, and they can’t expand.
3. Leader snobbery.
This has certainly diminished, but there is a surprising snobbery among some recruiters about temporary workers and desks. They feel that these appointments are not as strategically significant as their perm placements, or that there is less skill involved in dealing with the psychology of the placement.
So they put less-experienced people on these desks. And some business leaders side-line it. This leaves them at the mercy of second-hand market information from their staff.
It is difficult to challenge self-limiting beliefs like “There’s no-one available” if you have no feel for the market at all yourself.
4. Work arounds.
By which I mean business leaders who tell themselves: Yes, we know that –
- our contracts are out of date
- we haven’t got opt-out notices
- that these contractors are, in fact, under Supervision, Direction or Control
- that we ought to be checking on candidates’ qualifications
But we’ll deal with compliance when we are rich.
It never happens. In staffing, compliance is not a bureaucratic tick-box exercise. Proven compliance is a massive sales advantage. As end-users want more and more transparency in their supply chain coupled with less risk, knowing your stuff and doing it will be what separates the sheep from the goats.
And it saves you from the fines, tribunals and HMRC investigations.
Also, if your consultants have been well-paid for not doing their job compliantly, they will be very resistant to change. Get it right from the beginning, stay up to date and it will prevent a lot of hassle.
5. Split desks.
I have never known a consultant do really well over time while trying to manage both perm and flexible staffing.
The two candidate groups are often completely separate. The questions you need to ask them are different. And keeping on top of every move your temps/contractors make is essential if you are going to be able to fill jobs quickly.
The markets move at totally different paces.
If you asked me to do both, I would chase the biggest short-term fee (perm) rather than incrementally building a much more resilient business (temp).
Which leads me to…
Let’s not forget that a 100% perm recruiter will put money – some money – on your bottom line before a 100% temp recruiter. But in their second year, the perm recruiter may invoice twice as much.
A good contracts recruiter will invoice 4 times as much. So we need to give the temps guys a different plan – a higher payout at the beginning but a lower % payout at the top end.
Maintaining 80 contractors is not easy, but there is a point where the job gets easier.
7. Poor operational processes.
Educating your clients that this market is not the same as perm recruitment is critical.
Not only will the pay and charge rates appear very different, but the availability of certain skillsets can be wildly different between a perm and contract market. Most importantly of all, the hiring process needs to be different. Your temp client must move quickly, and often without interviews, to secure the best talent.
The other part of these operational processes that recruiters most often mistake is to start every temporary assignment with a search as if it were a perm role. Wrong. One of your key priorities in temp and contract work is to maximise utilisation.
That means placing good people over and over- because the cost of attracting, screening and getting them job-ready can eat up all your profits for the first few weeks of an assignment. So, find jobs for the people you know receive great feedback, are available, and have already been through those hurdles first.
It just happens that they are then more likely to give you referrals and inside information in exchange.
Alison Humphries is a highly experienced MD and NED, with 35 years at the top of the recruitment sector. If you are thinking about launching a temp or contract business, and want well-informed, up-to-date and hands-on support, please contact Alison Humphries today.