A Complete Guide for Entrepreneurs Starting an Executive Recruitment Firm in 2023

The low cost of entry in the recruitment industry makes it notoriously competitive. But it doesn’t have to come at the cost of profitability. If you’re planning to start an executive recruitment firm, you already have a large total addressable market. Companies run on talent and even with all the talk of AI replacing human jobs, the number of jobs created will exceed the number of jobs destroyed.

The bottom line – businesses in all industries everywhere will have a need for workers, and by extension, talent acquisition companies. You have the opportunity to capitalize on the demand and growth – overall employment in the US is projected to increase by 6.5% during the 2014-2024 decade. Setting up your recruitment agency from scratch is less challenging when you have a clear start-up plan that considers where the industry is currently and where it is headed. In this post, we walk you through the steps of starting your top executive recruitment firm.

9 Steps to Setting Up Your Recruitment Firm

1. Identify your strengths

Expect to have your hands full with a variety of tasks. Sourcing candidates and matching them to the client’s needs (the service you provide) itself involves multiple tasks. You also have brand marketing and accounting to think about. Managing everything on your own will be overwhelming and risky. Instead, focus on operational aspects (apart from strategy) that you’re best suited to and find a partner or put together a small team to handle the rest.

2. Get clarity on regulations and licensing

Understand the law of the land, so to speak, regarding the establishment and operation of employment agencies. You will need a license to carry on business, but will it be granted only if you have previous experience with an employment agency or equivalent experience? Consult an attorney to gain a clear idea of the legal requirements, and your rights and obligations.

3. Find your niche

What industry should you target? Choose one that you have considerable experience in rather than entering a new domain you have little knowledge about even if it’s ‘hot’ at the moment. If you’ve been a sales development manager or recruiter, the natural step is to start a sales recruitment agency. Have experience as a medical sales recruiter or hired them in a managerial or executive role? Your medical sales recruitment firm can benefit from your knowledge and first-hand experience.

4. Research your competitors

As you will be entering a crowded market, which includes bigger players, you’ll want to know a thing or two about who you’ll be up against. The fact that it’s harder for executive firms to differentiate themselves makes matters more difficult. Still, you can and should benchmark the competition and try to beat them on value. For starters, identify who your principal competitors are, the traction they’ve obtained, and how you can compete with respect to price and performance.

5. Sort out funding

You’ll need to arrange start-up costs that involve the attorney and other fees for setting up a legal entity, software subscriptions, hardware purchases, insurance, and office space. Operational expenses include office rent, your business partner’s or your compensation and salaries of full-time and/or part-time employees (if any), utilities, and supplies.

6. Invest in technologies

Apart from accounting, payroll, and HRMS software for admin and HR functions, you’ll have to think about two more recruitment technology solutions. First, a customer relationship management (CRM) software to build relationships with candidates and create a scalable source of talent for your clients. Second, an applicant tracking system (ATS) to coordinate and streamline the application and hiring process. A CRM with ATS integration is perfect to automate and optimize every step of the talent acquisition process.

7. Determine services and fee structures

Want to start a service sourcing temporary workers, temp-to-hire workers, or permanent employees? Should you help clients fill a variety of roles or solely executive-level talent? Determine focus areas for your business and their corresponding fee structures, which are explained briefly below: 

• For clients hiring temporary workers, the fee includes workers’ hourly pay rate and your mark-up (representing your profit)
• For clients requesting permanent workers, recruiting firms charge 15-20% of a new employee’s first-year salary
• Executive recruitment firms offer retained search, contingent search, or both:

 – A contingent search firm targets active candidates and is paid only if their client hires the candidate they presented. The fee is generally 25-35% of the new employee’s first-year salary.

– A retained executive search firm, which targets active and passive candidates, works exclusively for its clients. Under this model, your client will only hire the candidate you source for them. The typical fee is 30-35% of the new employee’s first-year salary, made in three installments:

• First one-third is paid to begin the search
• Second one-third is paid 60 days into the search
• Balance is paid after the presented candidate is hired

8. Boost brand awareness

When you’re starting out, you want to double down on your online brand marketing activities to attract as many candidates and clients as possible. Happy candidates will bring more referrals and positive word-of-mouth your way, increasing awareness and sales. A well-designed, SEO-optimized website, regular posting on social media, and email marketing are relatively cost-effective yet powerful ways to get before your target audience. Successful inbound and outbound marketing hinges on sharing useful and interesting niche-specific content. It’s worth hiring a full-time marketer for your content marketing needs.

9. Build the efficiency of your recruitment process

Your ATS, CRM, and the other supporting software you use will make your recruitment and/or staffing process streamlined and effective. There are other ways to make your recruitment firm’s operations more efficient. You could implement an electronic document system that integrates with your ATS so you can send and track documents, and maintain an audit trail of them. Your ATS is also a rich source of metrics like candidate satisfaction levels, percentages sourced through different channels, historical margin trends, and other recruitment ratios. Leverage them to gain actionable insights about your business.

Go from strength to strength

For a recruitment firm, time is everything – years in business is a key trust marker and makes candidates and businesses more secure in their decision to use the services of the agency. Building a strong foundation for your business is essential to attract employees, clients, and growth.

Hopefully, this guide has given you something to think about when creating your start-up plan. We advise you to get all the help you can to put your firm on a solid footing and turn your big idea into big money faster!