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Staffing Agencies Are Doomed. But Here Is How They Will Survive.

imageI’m not talking robots, AI or any kind of technology. I’m talking about business. I’m telling you about people. And, what I am going to explain is probably going to make you very happy if you’re anyone other than someone in the staffing business. If you’re in the later, you’re going to be really pissed off. Sorry. Just stating what I see. And, what I see really isn’t a trend anymore. It’s become the norm. Using staffing agencies has become the last option. Plus, it’s mainly an option if a company is looking for contractors for an extremely short time.

So why are staffing companies doomed? We are in election year. Company CEO’s, according to a WJC blog post,  are going to be hiring less in 2016. And, as of right now, I don’t see or hear of any slow down. But! I have been here before. We are heading for a slowdown for many reasons. Job creation and economic growth are anemic. Most companies plan to stop hiring.

Remember 2009? Wait. Remember 2001? How many recruiters were looking for a job? How many of those recruiters were on their own? Maybe a small group? Maybe a small staffing company? They were all hit hard those years. Some of them folded up. Some of them made it through the downturn. BUT GET THIS. The Downturn won’t have much to do with why staffing companies are DOOMED. Actually it will be the start of what has already become the norm.

Here is the norm. Rates. Rates and oh yeah, the rates. They are high. Astronomically high. Years ago, when I was working on the staffing side, the margins were anywhere from 25% to as high as 60%. Today, the cost of doing business with a staffing company (in terms of contract staffing) is no longer feasible. Staffing companies are slow to change. They are transactional, which means they need candidates for their jobs. Combine all this. Rates, transactional, too many staffing companies, and businesses that are NOT hiring as much this election year. All that spells D O O M for the staffing companies.

Let’s talk rates for a bit here. They are high. And, rightfully so. The cost of employing someone on W-2 is expensive once you account for mandatory healthcare, payroll taxes, and all the other taxes a staffing company is required to pay. All staffing companies have a LOAD RATE. That is the actual cost of employing a W-2 contractor and usually covers paying the recruiter too. HOWEVAH, the margins are dwindling. They are shrinking. Why? Because of competition. Too many agencies. Let me side step here for a second. The margins for Temp Agencies are very very low. I’m not discussing temp agencies in this post. I’m talking about staffing companies like Robert Half, Teksystems and others. The margins for these companies have mainly been FIXED. But that is a huge challenge for large staffing companies because they will get the SAME job reqs from the SAME companies and competing with other staffing firms offering LOWER rates. Independent recruiters are willing to collect a small fee as low as $2K per placement!! My point is this, all staffing companies will NEED to decrease margins to stay in business.

The business of TRANSACTIONAL RECRUITING is nearly dead. Companies are hiring folks that will stick around longer than a year. They want to hire quality. Not quality. Human Resource departments, corporate recruiters, and all the way to the top are focused on improving the quality of hire. Often, staffing companies have a small window to get a candidate hired. Competition is fierce. Most often the agency recruiter has to work smart. They can longer simply rely on job boards. In fact job boards have a bad rep because a lot of profiles are 3rd party resumes and most folks no longer post their resume because they don’t want to be spammed. So…agencies are having to build strong CRM and maintain relationships with those candidates. THEREFORE, in a slow down when companies quit hiring, staffing companies will let recruiters go, WHICH means less recruiters maintaining those relationships and drastically reducing opportunity to fill open roles.

And then there is this….

TOO MANY STAFFING COMPANIES. Yes. This is my opinion. But we have over 20,000 staffing companies in the US. It’s probably higher than that. Dude!! Do you realize there are more staffing companies than there are McDonalds in the USofA ! Approximately 14K McDonalds fast food restaurants right now. We have an ENORMOUS amount of staffing companies. Mom and Pop ones from all around the world have setup shop in the US.  Staffing Companies that offer the same cheesy bullshit sales pitches like, we are different, just give us a shot because we specialize in (fill in the blank) role, and of course the ole’ state of the art screening process that qualifies each applicant to the nth degree. Fact is this. 100% staffing sales guy that will explain their unique staffing approach is the same old BS that every hiring manager hears every day all the time. What I am saying is this. Too many of the same old staffing companies doing the same old recruiting EQUALS doom.

Here is what needs to be done for LARGE staffing companies to keep moving on, survive, and evolve.

  1. Give up perm placements for ANYTHING less than senior managers roles. Why? Too many independents out there that specialize in this area and willing to do it for as low as $2k per placement.
  2. Hire more 1099 contractors. It’s too expensive to place W-2 contractors .
  3. Hire project managers – NOT SALES – to manage the accounts. The days of putting an Account Manager that just grabs job reqs for every hiring manager they take to lunch is over. And it was over in 2009 IMHO. Hiring managers need a Resource Manager (not an Account Manager) to help forecast and on-board contractors.

Here is what needs to be done for SMALL staffing companies to keep moving on, survive and evolve.

  1. Everyone is a 1099 contractor. No more W-2.
  2. Stay niche. That means saying no to other areas.
  3. Invest in a CRM and stop using other tools that no longer work and that might include giving up your LinkedIn recruiter account.
  4. Function as a Resource Manager for your client. Stop using Sales Manager to get reqs and start using Resource Manager to on-board talent.
  5. Be willing to lower your perm placement fee. Getting 30% placement fee is great but not going to be much of those moving forward.

You agree or disagree with all this? Will you try some of these? I’d like to know.


About Michael Glenn

I am a talent acquisition consultant, trainer and motivator for jobseekers and recruiters. I specialize in helping others find opportunities and bringing top talent to companies.

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