How Do Recruitment Agencies Make Money?

Recruitment agencies make money by charging employers for recruitment and staffing services. The way they earn revenue depends on the type of recruitment they provide. Permanent agencies commonly earn a fee from a successful placement, while temporary agencies earn revenue by charging clients for workers supplied over an agreed period.

Other models include contract recruitment, retained search and related recruitment services. In every case, revenue is different from profit. The amount billed to a client is not necessarily the amount the recruitment agency will keep.

At RECRUSO, we know this from first-hand experience. Our founder, Danny Steel, previously ran a recruitment agency and created RECRUSO after searching for software for his own recruitment business. That background means our team understands the operational work that sits behind placements, bookings, timesheets, payroll and invoicing.

The Main Ways Recruitment Agencies Earn Revenue

Recruitment agencies can earn revenue in several ways, depending on the type of recruitment they provide and the commercial agreement they have with each client.

• Permanent placement fees: the agency earns an agreed fee for introducing a candidate who fills a permanent role.

• Temporary staffing margin: the agency charges the client for temporary workers and meets the costs linked to supplying and paying those workers.

• Contract recruitment: the agency can continue billing while a contractor completes an assignment.

• Retained recruitment: the client pays under an agreed retained search arrangement, which can include payments at different stages.

• Related recruitment services: some agencies also earn income from services linked to recruitment administration and back-office activity.

There is no single fee structure used by every recruitment business. The model, rate and payment terms depend on the agreement between the agency and its client.

How Do Permanent Recruitment Agencies Make Money?

Permanent recruitment agencies usually earn money by introducing candidates for permanent vacancies and charging the employer when the agreed contractual trigger is met.

In many cases, that trigger is a successful placement. The client pays the recruitment agency an agreed fee for sourcing, managing and introducing candidates. The fee may be linked to the successful candidate’s salary or calculated using another method agreed between the agency and employer.

The main point is that permanent recruitment revenue is commonly tied to individual placements. Once a candidate is placed into a permanent role and the agreed contractual conditions have been met, the agency can invoice the client.

The fee, payment point and contractual terms can all differ from one client agreement to another.

From our own experience of recruitment, managing permanent placements also means keeping track of candidates, vacancies, clients, interviews and placement activity. RECRUSO supports these processes through our perm recruitment software.

How Do Temp Recruitment Agencies Make Money?

Temporary recruitment agencies usually earn revenue through the difference between the cost of supplying a worker and the amount charged to the client.

Unlike permanent recruitment, where an agency may raise a fee following a successful placement, temporary recruitment can generate recurring billing as workers complete booked hours or shifts.

There are several operational steps behind that billing. A worker may need to be booked onto an assignment, their hours recorded, a timesheet approved, payroll processed and the client invoiced.

Anyone who has run a temporary recruitment desk will know that the client charge and worker pay are only part of the picture. The difference between employment cost and the amount billed contributes to the agency’s margin, but that margin is not pure profit. Other costs still need to be covered.

Payroll requirements, contractual terms and wider operating expenses can all affect the amount an agency eventually retains.

This connection between bookings, worked hours, payroll and invoicing is one of the reasons RECRUSO brings these processes together. Our temp recruitment software connects temporary workers, bookings, compliance, timesheets, payroll and invoicing, while our recruitment payroll software links worker pay with client billing and cost and margin information.

What About Contract and Retained Recruitment?

Recruitment agencies are not always paid through a one-off permanent placement fee.

With contract recruitment, an agency can earn recurring revenue while a contractor remains on an assignment. How and when the agency bills depends on the agreement it has with the client.

Retained recruitment uses a different commercial structure. The client agrees to pay the recruitment business under retained search terms, with payments potentially made at agreed stages rather than only after a final appointment.

There is also contingent recruitment, where the agency is paid once the agreed outcome has been achieved. This is commonly associated with successful permanent placements.

The terminology and billing arrangements can differ between recruitment businesses, so the contract between the agency and client remains the deciding factor.

Revenue Is Not the Same as Profit

One of the most important distinctions in recruitment is the difference between revenue, gross margin and profit.

• Revenue is the income generated by the agency from its recruitment activity.

• Gross margin is what remains after relevant direct costs have been accounted for.

• Profit is what remains after the wider costs of running the business have also been paid.

This matters because a recruitment agency can generate a large amount of client billing without keeping all of that money.

For a temporary recruitment agency, client charges may need to cover worker pay, payroll activity and other costs connected with supplying workers. The agency will then have its wider operating expenses to consider.

Permanent recruitment businesses also have operating costs, which can include consultants, marketing, software and administration.

From an agency-management point of view, looking at billing alone does not give you the full picture. You also need to know what the work costs and what margin remains.

RECRUSO’s recruitment payroll software connects timesheets, worker pay and client billing, giving agencies access to cost and margin information alongside their payroll activity.

What Can Affect a Recruitment Agency’s Margin?

The amount a recruitment agency retains is affected by more than its headline fee or client charge.

Day-to-day administration can also affect how clearly an agency can manage its commercial activity. Based on the processes we know from recruitment, areas that can create problems include:

• repeated administrative work

• unfilled or poorly managed bookings

• delays in timesheet approval

• payroll workload

• weak links between recruitment activity and invoicing

• poor visibility of costs and margins

This is particularly relevant to temporary recruitment because bookings, hours, timesheets, payroll and billing are closely connected.

If those processes are managed separately, it can become harder to see which shifts have been worked, which timesheets are waiting for approval, what workers need to be paid and what should be invoiced to the client.

That is one of the operational problems RECRUSO was created to address. Our platform connects temporary recruitment activity, timesheets, payroll and billing. We also offer outsourced payroll support for recruitment agencies that do not want to manage every payroll task internally.

Who Pays a Recruitment Agency?

In the revenue models covered here, the employer or client pays the recruitment agency for recruitment or staffing services under the agreed commercial terms.

The candidate or worker is therefore not the source of the placement fee or client charge described in these models.

Do Recruitment Agencies Make Money From Candidates?

The models covered in this article are based on employers and clients paying recruitment agencies for recruitment and staffing services.

For permanent recruitment, this will usually involve the client paying an agreed placement fee. In temporary recruitment, the agency bills the client for the workers it supplies under the agreed terms.

How Do Job Placement Agencies Make Money?

Job placement agencies can earn money by charging an employer an agreed fee when a candidate is successfully placed.

The way that fee is calculated, the point at which it becomes payable and any other contractual conditions depend on the agreement between the recruitment agency and client.

Is Temporary Recruitment Income Different From Permanent Recruitment Income?

Yes. Permanent recruitment commonly generates revenue from individual placements, while temporary recruitment can generate recurring client billing as workers complete assignments.

Temporary recruitment also involves worker pay and other employment costs, so the amount billed to the client should not be confused with the margin retained by the agency.

Does More Revenue Always Mean More Profit?

No. More revenue does not automatically mean more profit.

Revenue measures the income coming into the recruitment agency before the wider costs of running the business are taken into account. An agency could therefore increase its billing without increasing its profit by the same amount.

That is why agencies need visibility not only of sales and billing, but also of costs and margins.

Running the Commercial Side of a Recruitment Agency

Recruitment revenue starts with clients, vacancies, placements and bookings, but there is a lot of operational work between winning business and getting paid.

For permanent recruitment, agencies need to manage candidates, vacancies and placements. For temporary recruitment, the process can also include bookings, worked hours, timesheet approvals, payroll and invoicing.

We built RECRUSO from experience of running a recruitment agency ourselves. That is why the platform covers both the recruitment activity and the back-office processes connected to it.

If you want to see how RECRUSO supports temporary recruitment, permanent recruitment or recruitment payroll, explore the relevant software or book a RECRUSO demo.