13 Most Common Challenges in the Staffing Industry

Running a successful staffing agency is far from easy—especially when you consider the challenges facing staffing agencies in today’s hiring environment.

A wide variety of staffing agency challenges affect every firm in practically every niche or geographic location. However, this doesn’t mean you can’t overcome them and find success.

By understanding the most common challenges in staffing industry circles and how to appropriately address them, you can overcome these issues, or even get in front of them entirely, and keep operations running smoothly.

The Most Common Challenges Facing Staffing Agencies

Understanding the top staffing agency trends and challenges is the first step to overcoming them. Here are 13 of the most common challenges facing staffing agencies—and solutions to avoid each potential pitfall.

1. Talent Shortages

One of the most persistent staffing agency challenges is a talent shortage. This is when you simply don’t have enough available candidates to fill your clients’ openings. In some cases, you may have a large number of candidates but too few with the necessary qualifications for the jobs your clients need to fill.

Solution: Build a Talent Pipeline

A sustainable talent pipeline requires building target talent personas that align with the needs of your clients and then developing a sourcing strategy based on these personas. You should continually nurture candidates who are added to your talent pipeline to keep them engaged and open to new opportunities.

2. Constant Market Changes

The talent market is constantly changing—and how these changes play out can vary between industries. As one industry goes through a period of high layoffs, another may go on a hiring spree. Changes in budgets and operations can also influence your clients’ hiring needs. These constant market changes can create a rollercoaster in terms of placement opportunities.

Solution: Always Be Prepared to Be Flexible

Don’t put all your eggs in one basket. Consider other solutions for sourcing and placing candidates, other niches you could serve, and more so you can adjust as needed.

3. Candidate Ghosting

Few things are more frustrating than a candidate not showing up to an interview or even ghosting a client after a job offer is made. Up to 78% of job seekers say they’ve ghosted prospective employers. Such experiences can hurt your relationship with your clients. Similarly, individuals in your talent pool who aren’t engaged might start ghosting you as well, not responding when you reach out about job opportunities.

Solution: Continuously Nurture Your Candidate Pool

You should work to keep engaging with your talent pool, even when you aren’t actively trying to fill a role they’d be a good fit for. Providing useful career tips and updates via email can help keep candidates engaged and active.

4. Employee Turnover

Employee turnover rates can be influenced by many factors, but a high turnover rate from your placements could eventually cost you clients. This is especially true if employees are underqualified for the role you place them in or if they display inappropriate behavior on the job. High turnover rates cost clients and staffing agencies money and can be especially detrimental to your agency’s long-term growth.

Solution: Improve Candidate Screening Through Pre-Hire Assessments

Robust pre-hire assessments of candidate skills, personality traits, and other qualifying factors will help ensure placements are truly qualified for the job.

5. New Client Acquisition

One of the most persistent staffing agency challenges is acquiring new clients. Many agencies spend significant advertising dollars to try to reach new employers and job seekers when, in reality, word-of-mouth referrals are often the best way to grow your business.

Solution: Consider Building a Staffing Referral Program

Staffing referral programs encourage employers, candidates, and others to refer job seekers and clients in need of hiring help to your agency. Incentivized programs with tiered rewards can encourage participation and higher-quality referrals.

6. Navigating the Remote vs. In-Person Landscape

The employment landscape has shifted dramatically in the last few years, with many companies requiring workers to return to the office while others have adopted a hybrid schedule. Recent surveys reveal that 39% of employees prefer hybrid work, 32% prefer fully remote employment, and 29% want fully in-office work. Employer perspectives often vary, which can make it harder to match candidates and employers.

Solution: Build a Diverse Candidate Pool

Build a candidate pool that includes talent willing to work in remote, hybrid, or in-person settings. This allows you to serve a broader spectrum of employers and offer more diverse talent.

7. Automating Manual Processes

Staffing agencies track a lot of data, such as candidate interactions and their progress through the hiring funnel. Staffing agency professionals must also schedule interviews, send emails, and manage payroll and taxes—the list goes on and on. All of this can be extremely time-consuming and take away from your ability to find new clients and properly vet prospective candidates.

Solution: Invest in CRM Software and Other Staffing Software

Staffing CRM software helps automate many of these processes, such as tracking and analyzing data, automating emails and scheduling, and more. Automating routine tasks gives you more time for work that grows the bottom line.

8. Ineffective Onboarding Processes

Ineffective onboarding processes can create delays and frustration for job seekers and employers alike. This can include failing to give new hires necessary information for the new job or having inefficient manual processes that delay a new hire’s ability to start work. This can lower the engagement of your talent pool and create issues with new placements.

Solution: Create KPIs to Measure Efficiency

Tracking staffing agency efficiency metrics and KPIs, such as turnover rate, new hire productivity, and engagement, can help you determine when changes need to be made.

9. How to Ethically Use AI Tools

AI in staffing is a hot topic. Many are optimistic about how AI deep learning could improve candidate matching and help automate more mundane staffing tasks. However, there is also fear that AI could harm job seekers and replace jobs in staffing and other industries. Finding the balance in how you use AI tools is essential for optimizing efficiency while still making ethical staffing choices.

Solution: Research How AI Is Affecting Staffing and Recruitment

For example, you could utilize ChatGPT in recruiting to help develop interview questions or create Boolean search strings, but you should also be mindful of potential biases in AI that could negatively impact your hiring decisions.

10. Hiring for Niche Positions

Hiring for niche positions is another recurring staffing agency challenge. Whether you have a client who is trying to hire for a difficult-to-fill position or you serve a smaller industry in general, this can make it difficult to source candidates who are actually the right fit for the role.

Solution: Utilize Social Media to Identify Candidates

Platforms such as LinkedIn have greatly expanded opportunities for sourcing candidates. You can search for specific types of experience or roles to find qualified candidates.

11. Obtaining Sufficient Financing

The process of sourcing, screening, and placing candidates for a client can cost a lot of money. Depending on your cash flow, this may require obtaining financing in advance to carry out the hiring process. Unfortunately, strict lending requirements can often make it difficult for staffing agencies to qualify for a typical loan.

Solution: Research Alternative Financing Solutions

Solutions such as invoice factoring can help you get the funding you need without going into debt or undergoing a lengthy credit approval process.

12. Calculating and Negotiating Fair Markup Rates

Staffing agency markup rates are one of the most common ways of getting paid, but calculating the right markup rate can be a challenge. If your rate is too high, you’ll have a hard time getting clients. If your rate is too low, you’ll struggle to cover your operating costs. Striking the right balance is essential to help you run a sustainable business.

Solution: Perform Market Research to Set Your Rates

Agency markup rates typically range from 15% to 25% but can vary based on factors like the role being filled, the industry, and more. Doing market research will help you be better prepared to negotiate rates with your clients.

13. Struggling to Make Payroll

Depending on your agency’s structure, you may be responsible for payroll for the job candidates you place. And, of course, you’ll always be responsible for payroll for your agency’s employees. Cash flow issues caused by delayed customer payments or new projects that require a substantial investment can make it harder to make payroll.

Missing payroll can be extremely disruptive to your employees. Consistent payroll issues could cause them to quit or file a legal complaint.

Solution: Consider Payroll Funding

Invoice factoring and payroll loans can help you get the necessary funding in a timely manner to ensure you don’t miss payroll.

In-Summary: Industry Challenges for Staffing Agencies

Even though current staffing challenges could change, many of the challenges facing staffing remain consistent through the years. By understanding the trends and issues that both the industry as a whole and your agency specifically face, you can put more time and effort into the tools and strategies that will help you overcome them. As you strategically approach the challenges of staffing firms, you can give yourself a distinct competitive advantage and grow your agency successfully.