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Perm vs Temp. What type of Recruitment is best for your start-up?

By October 11, 2016 No Comments

When you are exploring the possibility of starting a recruitment agency, without any previous experience, then you will need to select the type of Recruitment Service that you want to provide.

There are many different types of recruitment agencies in various industries in the UK offering different combinations on the types of recruitment service: Permanent (Including Search), Temporary (Including Contract and Interim). Understanding how these different recruitment types can impact how your business becomes successful is vital before making a decision. Recruitment in a Box shed the light on the pros and cons and what you need to consider before going ahead.

Your Own Experience

Being new to Recruitment then keeping it simple is by far the best approach. By sticking to the industry type that you have the most experience in from your career to date is the best place to start.

Armed with your industry network of contacts that you have developed over the years it is recommended that you focus on Permanent Placements only.

 Permanent Placement

PROS

  • Moderate Levels of Compliance

You are obliged to follow current Employment Law and relevant aspects of the Employment Agencies Act and the Conduct Regulations. Suffice to say this is predominantly centered around avoiding illegal working and not charging a candidate for work-finding services.

  • Larger Fees in a single instance

By charging a percentage of the salary as a fee for your successful services to the client you can easily achieve sums in the significant £000’s. Depending on your earning expectations just making 1 placement every other month can see you comfortably well off.

  • Reduced Administration

Without the need for complicated application forms, references and other vetting requirements the admin required is contained within the process of sending CVs, organizing interviews and confirming offers after initial terms have been agreed. Also there is no need for timesheets and payroll as your client will be responsible for their employee once placed by you.

CONS

  • Time taken to make a placement

Depending on the details of the role that you are trying to fill, especially when given a search assignment, it could take weeks and even months to find the right candidate and get them through the whole process.

  • Waiting to get paid

Whilst you may get a tidy lump sum for your placement, unless you have a specific agreement in your terms with your client, then you could wait for a minimum of 30 days before you receive any money. This lack of cashflow can hurt your new business if you haven’t got your own money to support it in place.

If you are happy to lose some of the fees in order to get paid before the 30 days then a good invoice discounting company can be the ideal partner for you.

  • No Repeat Business

Unless you are dealing with larger companies or corporates you may find that once you have successfully filled a vacancy with your client that they may not have another one for you for quite some time. You therefore need to make sure that you build up a pipeline of vacancies with multiple clients to keep the sales ticking over.

  • Rebate Periods

Clients will insist upon a rebate clause in your terms and conditions of business. You can therefore never be certain that the fees that you have made are all yours until this period has passed and the candidate remains in post. It is advisable to seek the option of a free replacement to avoid having to give money back.

  • You have to work to bring the money in

If there is no activity at any time, holidays, sickness or other absence then you will have no potential placements to come in. Make sure that you have an active pipeline so any absences do not stall your growth or necessitate you having to start again.

  • A Perm Only Business has less value to potential Purchasers

An agency which only deals with permanent placements has a reduced company value in comparison to a contract/temp agency as the future fee value is virtually zero. You can improve this by ensuring that you get signed agreements from your clients to provide you with a minimum amount of vacancies per year.

 

If you manage your daily activities to counter some of the cons listed above then you can run a successful perm desk. If, however, you really want to give Temps a go when starting your new Agency from scratch then here is a handy list of pros and cons to help you to make your mind up as to what is the best option for you.

Temporary Placement 

PROS

  • Recurring Fees

Once your agency has a number of temps out working then you are earning fees without having to make additional placements. Overheads can therefore be covered each month by the profit margin being generated by temps relieving pressure on the need for additional sales. Even when you are on vacation you will still be generating fees every day your candidate works.

  • Ongoing Client and Candidate Relationships

To provide a successful temporary placements business you need to be speaking to your clients and candidates on a daily basis. This helps you to build excellent relationships and become the first point of contact when a client has a new position to fill.

  • New Opportunities

By providing a good service and maintaining good relationships with your candidates they can introduce you to new clients without you having to do the hard work yourself.

CONS

  • Getting Temp Vacancies

It is much harder to impress upon a client that you can provide a good Temporary Recruitment Service if you haven’t done it before. More often than not there will be barriers to entry – Preferred Supplier Lists (PSLs) being just one example.

  • Database

In order to respond to your client’s needs on a daily basis you will need to build AND maintain a healthy size of database. This takes a lot of time and cost to build from scratch with no guarantees that candidates will be available when you need them to be.

  • Cashflow

Temps like to get paid every week and if you don’t get paid until the end of the month by your client then how will you be able to pay them yourself without access to your own funds. Here it is wise, if required, to engage with a factoring company that can advance you a percentage of your invoice values for a pre-agreed fee. Do check the legal terms with these providers as you may find yourself with a debenture in place or a new equity partner or Director as a result.

  • Administration and Compliance

The administration and compliance required to run a Temp desk is significant. Especially if you are working in sectors related to vulnerable adults or children. Due to the nature of the work required it is often seen that an Agency has to either employ another person to do this or outsource it to another company for a monthly fee. This erodes any profitability gained an increases the need for more placements as a result.

  • Monthly Margin out of your control

Whilst it is a pro to have recurring fees you are entirely reliant on the temporary workers turning up each day for work. Any day lost to absence, holiday or sickness eats into your profit margin.

Current Trends

As well as your own experience one of the most important thing to take in consideration is the trends in the market. For example, in recent months the Brexit vote has had an impact on the recruitment industry and may do so again when Article 50 is evoked. The last REC report contains further evidence that “UK employers have shrugged off the initial shock of the referendum result. There remains a degree of caution in London, where permanent hiring has been in pause for the last 5 months”. But it seems now that the permanent market is now growing again for the second consecutive month, with an encouraging increase of vacancies.

If you are thinking of starting your recruitment business in the next few months, it is important to pay attention to the shifts in the market and ensure that you are available at the right place, at the right time, in the right space.

Conclusion

When starting out on your own as a Recruiter you want to give yourself the best chance possible to be a success.

Here at Recruitment in a Box we recommend taking the simplest and most efficient route to market according to your skills and experience. Depending on the niche market you decide to target, it might be important, as described above, to provide only permanent placement services initially and move to providing temp once you have gained a solid network and developed a stable financial business subsequently.

At Recruitment in a Box, we can advise on what solution would be the best for your new business. To talk with our recruitment experts, please call us on 02034173101.