For several years, invoice factoring has been closing the small business financing gap. Sometimes, however, small businesses need more funding opportunities to sustain cash flow, and they are curious to know if they can receive funds from different factoring companies at the same time. We know invoice factoring is a great financing alternative, and you […]
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Healthcare staffing agencies may be the only way the country can keep up with the increasing demand for healthcare professionals. Experts predict that the nationwide healthcare staffing market size ($24.6 billion as of 2024) is expected to grow by 5.8% from 2023-2030. No matter the niche, from nurse and CNA staffing to medical billing professional […]
Unpaid invoices hinder the day-to-day operations of small businesses across the country, as only 55% of B2B invoices are paid on time. While 54% of small businesses have come to terms with late invoice payment being a norm, this doesn’t have to be the case for your company. Many business owners have found a way […]
Running a successful staffing agency requires making enough money to manage business expenses while simultaneously generating enough markup per contract to continue generating profits.
But how exactly do recruitment and staffing agencies make money, and who pays them?
Recruitment and staffing agencies get paid by their clients who utilize their services, and this money typically comes in the form of one of three main pricing models:
In this article, we will explore how each of these pricing models work to help you better understand how staffing and recruitment agencies make money.
In a flat fee staffing arrangement, a fixed amount is negotiated as payment for recruiting workers, and this fee is negotiated and paid before the staffing agency starts sourcing candidates. It is not based on the skill set of the employee, the years of experience, or how much the employee’s salary is but is instead determined by the industry standard and business logistics.
The flat fee charged to recruit a candidate may vary from company to company. For example, a staffing agency may charge one company a $15k flat fee but charge another company a $20k fee.
This model of payment is cost-effective for both the employer and the staffing company. It makes budgeting easier for both employer and the agency as they have a set amount of money to plan with. It can also help the employer save money compared to other pricing models because the cost per hire is constant, so the employer does not have to pay more for employees that make a higher salary, as is the case with a salary markup model (see more on that below).
On the flipside, a staffing or recruitment firm may make less money on a flat fee staffing model compared to another model, such as a salary markup, since they would not be able to earn more for higher salaried roles.
Remember, before earning money from flat fee staffing, the first and most important step is to find staffing clients that are willing to pay.
In this model, the staffing agency receives payment as part of the employer’s company on a long-term or retainer basis.
This usually works well for startups that cannot afford an internal recruiting team or companies that want to incorporate a high level of expertise without directly hiring them.
This model is based on Recruitment Process Outsourcing (RPO), where a company outsources its recruitment to a third party which serves as an extension of the company. This is ideal for recruiting high-level positions, such as C-suite executives.
The payment model works similarly to flat fee staffing as payment is made for the placement services and not for the candidate. Unlike the salary markup where staffing agencies are only paid if the employer hires their candidates (see more on that below), retainers are paid before a candidate is found or placed in a role.
An advantage is that there’s no competition as the recruiting agency enjoys an exclusive working relationship with the employer.
In this payment model, the staffing agency earns money from a percentage of the employee’s first annual salary. This percentage is known as a markup and is added to the billed rate (hourly for contract or temporary positions or annually for full-time positions). The markup ranges between 25% to 100% on average. It’s up to each staffing agency to calculate unique markup rates.
For example, an employer contracts a staffing agency to find talent for a particular vacancy. If the annual salary is $60k, and the markup is 30%, the employer pays a total of $78k, in which $60k goes to the employee and $18k goes to the staffing agency. Or, if it’s a contract role with an hourly payment of $60 per hour with the same 30% markup, the staffing agency gets $18 per hour while the employee gets $60 per hour for as long as the contract runs.
The amount a staffing business can earn is directly tied to the employee’s salary, so a higher salary leads to higher earnings for the staffing agency. For full-time positions, staffing agencies are paid after a minimum period of employment which can range from between 30 to 90 days.
With all this said, staffing agencies typically negotiate rates with clients. An agency will rarely have fixed markup, as exact numbers are often negotiated with new clients before signing the contract.
In the case of contract or temporary workers, the staffing agency (not the employer) pays the workers. This is because the workers are employees of the staffing agency. The employer pays before the workers start working since it’s usually a day-rate arrangement. With an average of 3 million temporary and contract workers in America’s staffing agencies, it’s no surprise how these agencies make money.
Staffing fees are typically paid by the employer who contracts the services of a staffing or recruiting agency. In a few circumstances, staffing agencies also charge employees who are looking for work, but this is unethical as a part of the employee’s earnings typically already go to the staffing agency.
Before charging staffing fees, it’s important to understand how to price staffing services so you can pay the standard fees required to recruit a successful fit and not waste your time or run into a loss.
Whether you’re starting your own staffing agency or you’re considering partnering with an employment agency to help find top employees, it’s very important to carefully analyze these pricing models to determine which best suits your business.
For example, an owner of a brand-new staffing firm might benefit most from working on a retainer model, which ensures payment for recruitment services even if a candidate is never placed in the open position.
These models demonstrate how money is funneled into a staffing company, but note that there are other, more indirect ways staffing agencies make money. For example, many agency owners have staffing referral programs, a fantastic way to find new business without having to put in much work.
How staffing companies get paid and make money is a bit more complex than your typical B2B or B2C company. However, the flexibility of pricing models can be seen as an opportunity to maximize your profits if you choose the right one for your staffing business.
How much a staffing agency makes per year will depend on a few factors, such as the industry the agency specializes in, which staffing model is most commonly used, and the size and age of the business. However, the average staffing agency owner brings home $114,182 per year, according to ZipRecruiter.
Staffing agencies typically charge a 10-20% markup for permanent employees and anywhere from 20-75% for temporary employees, meaning how much a staffing agency makes per employee differs significantly based off employment type.
Staffing agencies usually charge clients anywhere between 15-30% of the employees’ wages, will exact figures depending on factors such as type of placement, job title, and industry.
When it comes to non-traditional financing solutions, invoice financing and factoring are common alternatives to transforming your accounts receivables for quick funding. Both options are similar as they provide a cash advance for business owners to increase working capital and scale their growth. However, some differences exist between them, and in this article, you’ll explore […]
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It is not uncommon for businesses to struggle while working on net 30 or net 60 payment terms with clients. Since obtaining a loan from banks is not easy for most small business owners, they often turn to invoice factoring. However, like every other financing option, invoice factoring does not come without a few risks. […]
