Recruitment is a common process for every business or organisation. For adding new talents and maintaining the company’s workforce, continuous hiring is essential. With new business model have emerged which streamlines the overall hiring process for companies is a recruitment agency. However, people wonder how do recruitment agencies earn money.
This concern is very common because these agencies are like mediators that connect companies with their desired talents. So, let’s discuss this topic in detail.
What is a Recruitment Agency?
Recruitment agencies are bodies that provide hiring and onboarding services. These agencies help companies that frequently hire new candidates by providing their specialized services. They help by streamlining the initial recruitment process. These bodies provide services to businesses to find, evaluate, and hire the right candidate. So, instead of companies that want to increase their workforce, the recruitment agencies do most of the hiring task.
From resume screening to onboarding, the range of services is wide and may include various rounds of training. The recruitment agencies work in several sectors or industries and are associated with every level of hiring, from entry-level to senior or lead roles. This makes the overall recruitment process fast and smooth. Also, the company that is hiring does not need to use resources for hiring, which eventually increases productivity.
How do recruitment agencies earn money starts with understanding the needs of employers and the roles of hiring. The agencies filter candidates based on their skills, experience, and other criteria. The complete process includes candidate sourcing, resume screening, evaluation, and others. So, there are various earning sources of recruitment agencies, one of which is that employers pay them for hiring services.
These processes of hiring seem easy, but are very time-consuming and require a workforce that comes under the roles of the Human Resource Department. Recruitment agencies help companies and businesses to source candidates without disturbing their core operations. The tasks of these agencies include resume evaluation, conducting initial interviews, shortlisting, and filtering candidates.
How Do Recruitment Agencies Earn Money?
There are various channels through which recruitment agencies earn money. The role of these agencies is connected on both sides. Like for a candidate, they provide a placement or job opportunity, and for companies, they provide desired candidates. However, in most of the scenarios, the employer pays the agencies for providing them with new joiners. The way in which recruitment agencies earn money:
Placement Fees
This is a very general model where companies connect with recruitment agencies to get talented candidates. In this model, the agencies get paid for a permanent placement role. After a successful placement, the companies pay them. However, the amount which is paid to the recruitment agency is based on the joiner’s first year’s salary package.
The employer pays the fees after the candidate joins successfully. This reflects a sense of growth-orientation and long-term reliability. This allows companies to have the best talent with a one-time fee.
How Do Recruitment Agencies Earn Money in the Retained Service Model
This model is a newly used approach in which the companies that seek senior-level or specialized-level candidates outsource this process to a recruitment agency. The payments are made in phases, and the services include searching for the right candidate based on experience.
For this specific reason, in-depth research is needed. Also, the agencies need expert hiring employees who can filter out the best candidates for the company’s unique needs.
How Do Recruitment Agencies Earn Money in the Contingency Recruitment
This process depends on the filling of a vacancy. Here, sometimes, multiple agencies work simultaneously, and the one that fills the hiring gets paid according to a percentage defined from the candidate’s first year placement. This model is very famous because here the payments are only made based on the successfully onboarded candidate. On average, the recruitment agency get 15% to 25% of commission from the employer or the end recruiter.
How Do Recruitment Agencies Earn Money in the Temporary Staffing Industry?
This is also a staffing business in which the agency provides experienced workers to the companies that seek them. They decide the payment model, either hourly or monthly. The agency charges the company higher rates and connects them with their experienced workers, and the gap in the amount they get and the amount they pay to the working individuals is the income for the agency.
However, this model requires higher resources and management capabilities because it is the responsibility of the staffing agency to ensure smooth operations delivered by their employees. We can say that this type of agency is like a company that provides services in different domains.
Recruitment Process Outsourcing Agencies
Recruitment agencies that pursue this model provide end-to-end services. These are best for those companies that want to outsource the complete hiring process. All the actions, like initial screening, interviews, HR rounds, shortlisting, skill assessment, and various practical rounds. Everything will be conducted by the recruitment agency only.
In the very end, the company that is hiring takes an interview for cross-checking and directly onboards the candidate. However, this model runs on the expertise and trust of the company in the agency. This is because the recruitment agency should have an expert employee who can perform the required round of screening so that the best profiles can be shortlisted.
In the end, the recruitment agencies not only provide worthy candidates but also reduce the hiring time consumption and increase productivity. If you are asking, how do recruitment agencies earn money, then their earnings and revenue model depend on efficiency, performance, and trust.
Recruitment Through a Headhunter
A headhunter is a recruitment professional who specializes in candidate sourcing and onboarding processes. Many companies that frequently hire new employees connect with a headhunter to get the best and most experienced talent. A headhunter works closely with a company to lead them to professional candidates for their vacant positions.
Based on studies, the global staffing and recruitment market will cross the market size of $1.8 trillions by 2031. Link
Who Pays the Recruitment Agencies?
It is very important to understand who pays recruitment agencies for sourcing candidates, because there are various misconceptions regarding this issue. Many think that the candidate needs to pay the placement fees, or the placement fees are deemed after the successful onboarding. But in reality, the employers pay the fees for every candidate that the recruitment agency provides.
Mostly, the recruitment agencies are fully paid by the employer only. The amount that is paid to them depends on the contract. Recruitment is not a dependable business, which means it is not like the recruitment agencies are dependent on the companies for making revenue. There are many companies in the market that seek to outsource their employee searching.
These agencies connect as a hiring partner that has direct access to the Human Resources department, but only till the onboarding.
There are many agencies that have made their specialized platform, which provides online interviews, assessments, contact, resume sharing, and other activities. The myths, like the candidate needs to pay some fees, are mostly false. And rarely seen in some irregular markets and companies. Recruitment agencies that are reputable do not conduct these kinds of activities.
The earnings for a recruitment agency are based on the candidate’s first-year annual salary. This does not mean that the agency is paid through the candidate’s salary, but just a percentage of the annual salary is paid by the employer only. The candidate who is onboarded, their salary is not affected, and they receive full payments.
For agencies that provide staffing, the earnings are the markup fund remaining between the payment received from the client company and payments paid to the workers.
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Do Recruitment Agencies Charge Job Seekers?
It is already mentioned that recruitment agencies do not charge any money to the job seekers. This is like a rule in the job and recruitment market worldwide. Because each year, new candidates arrive, and the recruitment services are for the employers or companies. However, there is a business sector called edTech. It is often seen that the edTech company that provides specialized training and placement services charges a fee for the initial training.
If we talk from the perspective of the candidate, then the services or features recruitment agencies provide are mostly free, like job matching, initial evaluation, resume reviewing, interview scheduling, etc. These do not charge anything from the candidate because eventually the employer is in profit if their vacancy gets filled. So, it is the responsibility of the employer or the hiring company to pay the service fee of the agency.
As we discussed, there are some companies that provide training:
Example: A person who has graduated from a computer-related stream goes to an agency that provides basic training and placement assistance. The person enrolls in the training and completes the 3-month or 4-month training, which is like an internship, so that the candidate is able to crack the actual company’s coding rounds.
As in the above scenario, the person needs to pay a training fee to learn the real-world practical skills. However, here, the placement and recruitment fee are paid only by the employer, which means for the candidate, the placement options are free. Also, there are some digital job listing and application platforms that have features for premium members.
This is an explicit feature that provides the candidate with chances to highlight their profile in front of the employer. So, there might be some charges or premium payments associated.
How Much Profit Do Recruitment Agencies Make?
As a business, starting a recruitment agency is highly profitable. But the total revenue or profits depend on various factors like earnings from each candidate, operations, market, and sector they have chosen, and hiring model. Also, there are various expenses associated with in-house HR members, candidate accumulation team, tools, etc.
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Key Factors on Which Earning Potential Depends:
- Type of Recruitment Services: The type of hiring model affects the revenue. Recruitment agencies that specialize in executive, senior, or niche-based recruitment tend to earn a higher margin compared to agencies that deal with entry-level jobs. It is very obvious that the earning depends on the salary package of the candidate. So, the higher the starting package, the higher the commission will be.
- Revenue: Recruitment agencies often generate strong revenue through placement fees, staffing margins, and retained contracts. However, profit is what remains after deducting expenses such as recruiter salaries, office costs, technology tools, marketing, and compliance. High revenue does not always mean high profit. Also, revenue is the total earning and profit is the money after deducting all expenses from the revenue.
- Expenses and Profit: After the revenue generation, the profit is calculated by subtracting the expenses from the total revenue. There are various expenses associated, such as marketing, employees, process making, office costs, tools used, comliances and others.
- Operational Efficiency: The profitability and earning capacity highly depend on the operational effectiveness. How the agency streamlines the overall recruitment process, such as fast screening and interviews, through automation platforms. For reducing the time-to-hire, the agency can use the filtered databases and AI tools.
- Market Demand and Competition: Agencies that are working in popular and high-demand sectors like technology, finance, healthcare, etc., get more clients. The competition and market size highly affect the earning potential of recruitment agencies.
- Client Satisfaction and Commitments: The continuous growth depends on the relations of the agency with the client. It is essential for every business owner to maintain a trustworthy relationship with the customer. And in the recruitment business, for on-time commitments, decent behaviour, and a smart approach are needed.
Conclusion
How do recruitment agencies earn money, the correct answer is by providing candidate sourcing and hiring services to companies. Recruitment agencies are a vital spot of candidate onboarding and outsourcing for companies. Many companies do not wnat to setup a in-house team for employee hiring, so they consult with some recruitment agencies. There earning is based on the vacancy fulfillment. The employers pays the agency the payments once after the successful joining.
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Frequently Asked Questions
Do staffing agencies take a cut of your salary?
The staffing agencies does not take payments from your salary, but the employer pay them the equivalent amount of money which is decided in a agreement based on the percentage of the salary. The recruitment agencies are only paid by the employers only.
Can I just pay someone to find me a job?
Yes there are some agencies which are connect directly with some other companies and they provide 100% placement assurance. Also, these companies sometimes provides the initial training so that the further process becomes streamlined.
How do recruiters typically get paid?
Generally, the recruiters are paid by commissions from the candidates onboarding. The earned amount is decided as a percentage from the placed candidate’s first year salary package. This does not means that the amount is cut off from the candidate’s salary. It is just used to decide the amount.
