8 Steps to Starting a Recruiting Business

Over the last few years, the transition from aggressive headcount targets to a period of quick layoffs and hiring freezes has a lot of corporate talent professionals re-evaluating their career path.

Who doesn’t want to be their own boss and make more money? No one wants to be stuck in the daily grind, they want the job of their dreams!

As a result, the top full-cycle recruiters have quit their jobs and started their own recruiting businesses. But even if you know you’re talented, and you know you can make your business work for you, taking that leap is scary.

That’s why we’ve laid it all out for you. Below, you’ll find eight straightforward steps to launch and maintain a successful recruiting agency.

1. Do Some Soul-Searching

The labor market is only getting harder and harder to navigate, so the reality is that recruiters must be competitive. Becoming a great recruiter and starting your recruiting business takes tenacity and perseverance. It will likely take extra hours, extra networking, and above all, extra  creativity.

Taking a hard look at your past experience and asking yourself if you can truly deliver on these results is somewhat of a drawn out process. Do you have an excellent placement track record? Can you handle the highs and lows of recruiting? Make sure those are resounding yeses before pouring time and energy into starting a recruiting firm.

You’ll likely be in good shape if you’ve already excelled at a fast-paced recruiting firm. Most of those firms made you hit mandatory monthly quotas, taught you how to network, and forced you to become a subject matter expert in the field you recruit for. You may have even built close relationships with candidates and clients you could carry over into your new business.

If you don’t have an aggressive personality, you could also partner with someone who is. For example, perhaps you prefer the back-end of a business and have a colleague that can master the front end. Just make sure the other person is as dedicated as you are to building the business.

2. Write a Business Plan

People like to hate on business plans, but there is merit to setting big goals when starting your recruiting firm and working backward to achieve them.

But to make a realistic, useful business plan, you need to hone in on your market. In other words, what’s your niche?

Maybe you specialize in recruiting for enterprise-level B2B SaaS companies or finding the best research scientists for pharmaceutical companies. Pick an industry, company size, and type of role you’re good at filling, making you stand out among your competitors. To help you narrow your focus, here are a few recruiting specialties:

• Temp or contract staffing
• Executive search
• [Insert Department] recruitment (for example, Engineering, Product Management, Sales, etc.)
• Outplacement

You may also offer other services, such as:

• Creating job descriptions
• Promoting job descriptions
• Pre-offer skills assessments
• List building

Once you’ve nailed down your offering, determine your target market. Who will pay for your recruiting agency’s services? Consider your niche for your business plan thesis. Knowing what kinds of companies you’re going after and who works at those companies will help you figure out the best way to price your offering. Incorporating Recruitment Marketing into the plan adds immense value to the business!

We’ll talk about payment structure in a later section, but having a rough idea of what you are planning to charge will help you calculate financial projections, the final piece of the recruiting business plan puzzle.

As a placeholder, set a revenue goal for the year, taking into account startup and ongoing costs. Besides your salary, your business will have to pay for things like:

• Business formation and licenses
• Ads, business cards, or other marketing materials
• A computer
• A cell phone
• Web conferencing software
• A recruiting CRM like Talent CRM
• LinkedIn Recruiter (or another database of candidates to search)
• An accountant and/or tax preparer

Ideally, you won’t have to raise money, but if you’re looking at these expenses and aren’t sure how you’ll pay for them, it could make sense to do a “friends and family” seed round to get your business going. To win them over, you’ll need an organized, traditional business plan outlining how you’ll start your headhunting business, how it’s going to work long-term, how it’s competitive in the market, and what your financial targets.

3. Form a Legal Entity

Registering as a legal entity makes your business feel more official to you and makes it seem more official to your clients.

The first step is to pick a name for your recruiting agency. This can be tricky since some names you brainstorm may already be taken. Cross-check your name on web domain providers, state and federal business records, and social media to ensure your choice is one-of-a-kind.

Then, take some time to learn about various corporate structures. Speaking with a tax preparer or accountant who can help you decide what format is right for you and point you to legal filing services. For reference, most recruiting businesses opt to become LLC or S-corp entities.

After you file, you’ll also need to apply for an Employer Identification Number (EIN) and register for taxes in your state. At this point, you should make a plan to save for taxes as well. Many recruiting businesses save up to 30% of their monthly revenue for that year’s taxes.

While you’re working on these legal-related activities, asking a lawyer to set up template agreements is a good idea. These should be relatively simple and client-friendly so you can onboard new clients as fast as possible.

4. Business Bank Account

New business owners need to be extremely diligent when it comes to finances.

Keeping your recruiting business income and expenses separate from your personal accounts is key in the unfortunate event that your business is sued. Even if you are an LLC, the suing party may “pierce the corporate veil,” holding you personally liable for your actions or debts and seizing personal assets.

Opening a dedicated business bank account will inherently keep your accounts separate. Plus, it will allow you to monitor what’s coming in and what’s going out, so you can gauge your recruiting agency’s performance. Doing this regularly will help you figure out where you could be more cost-efficient and will pay off big time at tax time.

In addition to your bank account, you should apply for a business credit card. Building up your business credit can increase your lines of credit and help you get better interest rates on future loans.

5. Business Insurance

Business insurance is optional, but it will ensure that your recruiting agency operates safely and lawfully and can cover substantial losses. Since recruiting isn’t as high risk as other businesses, general liability insurance is probably the way to go.

As you research different vendors, it could behoove you to call agents at insurance companies you already contract with for fire, earthquake, condo, or auto coverage. Most major insurance organizations will provide general liability insurance, and you may get a discount if you’re already their customer.

The only other coverage you may need is workers’ compensation. If you eventually hire employees for your headhunting firm, most states will require it.

And remember, policies typically renew yearly, so shop around to get the best quotes.

6. Marketing

Even though your recruiting business is constantly top of mind for you, it’s not top of mind yet for anyone else – and that’s where marketing comes in.

Your ideal clients need to know who you are and what you do. Luckily, there are many avenues to get their attention.

These days, LinkedIn is a great vehicle for flexing your thought leadership and networking with clients and candidates. Ensure your profile and recruiting agency profile reflect your brand and communicate your unique strengths. Put yourself in your clients’ shoes – what would they be searching for? Think of keywords and phrases to add to your Tagline and About sections so that you’re easily searchable.

You should also have a basic website. Again, it’s important to think about the copy you use on your site. What you say and how you say it will dictate who is attracted to your services. The first thing people will do is Google search your business, so your LinkedIn and website need to be in tip-top shape. Business cards can also create a good first impression if you’re planning to attend in-person conferences.

Consider outbound marketing as well. The best recruiting agency software will get you in front of potential clients and candidates. For example, tools like Talent CRM can help you find the email addresses you need and get the conversions you want by sending automatic follow-ups.

This will take trial and error, so keep track of the marketing strategies that work. Then, figure out what is working about those tactics and try replicating them as best you can.

7. Determine Your Payment Structure

How much recruiters make depends largely on their payment structure. You can charge your clients however you see fit, but there are a few most commonly used payment structures for recruiting businesses that can set you off on the right foot:

• **Flat Fee Search** - ****Flat fee searches are just what they sound like – you fill a role, and a client pays a flat fee. Flat fees can be very useful from a forecasting standpoint since you’ll have a predictable rate each month.

• **Contingent Search** - I****n this model, you get paid when an employer makes a hire. You’d be more hands-on in this process, guiding candidates through interviews until onboarding. Typically, contingency search payouts are 20 - 30% of the role salary. However, if clients commit to multiple roles, you could give them a lower percentage as a discount.

• **Retained Search** - ****With this structure, clients pay an upfront fee to have you fill a very senior-level or executive position. Since it’s often more time-sensitive, this type of search may need to be prioritized over contingent searches. Take that into account when you’re pricing this service.

• Contained Search - Contained searches make the most economic sense for your clients. They pay part of your rate upfront and the rest after you’ve placed a candidate.

• **Hourly Search** - ****Some clients prefer to pay recruiters by the hour, but for most recruiting businesses, this is the most unideal payment method. If you’re good at your job, hourly searches essentially incentivize you to work slower, making it tougher for you to provide what your clients will consider top-notch service.

Keep in mind that none of these models are mutually exclusive. Just make sure that (1) you confirm the structure(s) with your clients before beginning any work, and (2) your client signs an agreement that outlines the structure(s) you’ve decided on.

You should also spell out what happens if you fail to place a candidate. You could pro-rate or include a free replacement clause in your contracts.

8. Monitor Your Performance

It’s easy to focus solely on client work and lose sight of your recruiting business goals – especially when you first launch. That’s why it’s vital to set goals early and check them often. Here are some questions to ask that can turn into monthly or quarterly KPIs:

• How many clients can I sustainably handle per month?
• How long does it take to find great candidates?
• What channels are giving me access to the best candidates?
• How many of the candidates I bring to screening interviews make it to the later stages of the recruiting process?
• How often do I successfully place candidates?
• Am I helping my client boost their candidate NPS score?
• Am I meeting my revenue goals?

Answering these questions is a great way to identify gaps in your recruiting business and measure how well new strategies plug them up. It’s also a good idea to share some of these metrics with your clients on a regular basis to clearly demonstrate return on investment from using your recruiting agency.

Scale Your Business With the Right Tools

Starting a recruiting business is no small feat, but with the right preparation, attitude, and tools, you can start working on your own terms.

One way to streamline your recruiting business is to use a recruiting CRM like Chatkick’s Talent CRM. Besides finding candidate (and client emails) emails, Talent CRM enables you to create robust campaigns and automate your follow-ups, which can more than double your response rates. Plus, it has built-in metrics to help you get a handle on what outreach strategies are working at which aren’t, saving you precious time.

The best part is that there’s a free trial that doesn’t require a credit card. Sign up to try Talent CRM today.