In today’s day and age, with the worlds ever-growing population and with AI replacing a lot of employees throughout a number of different industries, the need for new jobs is constantly getting bigger and bigger for each year. Therefore, a lot of staffing agencies and recruiting business are experiencing increased demand, making this industry a viable and lucrative one to tap into.
Although there are a number of good arguments for why to starting a temporary staffing agency is a favourable idea, it's crucial to realise your responsibility to employees and businesses when running a staffing agency, as well as using appropriate methods and measures to streamline the starting process.
The basics of a temporary staffing agency
First of all, let’s outline the basics. The basic principal of temporary staffing agencies is to lease employees to companies looking for new staff members. In order to come by a decent profit, these agencies pay their employees less than what they charge their clients. Margins may vary a lot though, ranging from 3-4% all the way up to 50-60% in certain cases. What ultimately determines the price and your margins, is the current status of factors such as industry, location, demand and supply. We’ll cover this more in detail as we roam our way through this article.
Why should you listen to us? Because, at PARiM, we have hundreds of companies that offer staff as a service. Our team has 100+ combined man hours of experience in working hand-in-hand within this competitive sector.
Setting up client and staff communication
Staffing agencies are often recognised as both respectable and preferable by the companies choosing to work with them, much due to the fact that a staffing agency provides employees on an “as-needed” basis. These companies (the clients) are also capable of adding a few extra sets of hands when things get busier than expected, allowing clients to easily skip the whole hiring process when there’s a need for an extra employee for a shorter period of time.
To improve agency-to-client communication we have created a Client Portal that allows you to present the work you and your staff do for your clients in a professional manner. Clients have access to a handy calendar displaying upcoming shifts, to timesheets and documents shared by your team (contracts, agreements etc..)
It’s not only the clients who have a tendency to fancy these agencies though, but the employees tend to also enjoy the structure and opportunities provided by the temporary staffing businesses. They provide freshly cut opportunities and a flexible work environment, as they at the same time may be great stepping stones to what can eventually become a permanent position.
For that reason, we have also created a separate Staff Portal, where your workers can see their schedules, timesheets, assets that have been assigned to them (from clothing to devices), set when they are available or unavailable (useful depending how you set up your scheduling process) and even request time off.
From basic processes to profits: managing the profitability of your temporary staffing agency
Besides setting up staff- and client-related processes discovering the right profit margin is normally one of the blurriest areas when it comes to setting up your own staffing business, so we decided to start off by sharing the common formulas, what’s seen as a respectable margin for someone just starting out, and where you might eventually end up if you play your cards right.
Figures may vary wildly in the staffing services industry, although a number provided by industry experts average somewhere around $750,000 per year for privately held companies.
According to reports from Entrepreneur.com, profits are expected to stay on a healthy level. “Net profit margins (profit margins after you pay operating costs) in general staffing services can run from 4 to 10 percent. And what if your company doesn't do general staffing, but instead operates in one of the niche markets? "The sky's the limit," says staffing service owner Rita Zoller. Nevertheless, staffing industry profit margins vary widely. According to the ASA, a profit margin of even 5 percent, especially in the first few years of operation, is respectable.”
The aforementioned article continues by stating, “One owner estimates that her gross profit margins runs about 46 percent. After operating costs, her net profit margin is probably 25 to 27 percent before taxes. She adds that without the permanent placement income, her profit margins would run 9 to 11 percent. Temporary employees are her mainstay, and they are also how she gets a lot of her permanent placements.”
To monitor the profitability of your new agency you can use one of the many reports PARiM offers. One of the most useful ones for our temp staffing clients has historically been the position coverage report, which compares planned positions with actually allocated ones and allows you to monitor the coverage percentage. With that report, you can see your planned gross margin:
Starting costs of a temporary staffing agency
Although it’s of utter most importance to make sure you work your way towards healthy margins, it’s also crucial to establish how much starting out will actually cost. Startup costs may be divided into two categories: establishment and operational.
Establishment costs are normally the costs needed in order to setup your basic business. Even though most of these are one-time costs, make sure you get these out of the way and that they’re paid before you take on important step of hiring your first client. They include:
- Legal setup expenses (entity formation & contracts)
- Software (HR, accounting, payroll, testing, and training)
- Office (if you need it)
When it comes to operational costs, these will usually include the initial expenses of finding new employees, suiting clients, and in order to deliver your first months of services. For business targeting higher-skilled job assignments, the startup cost will generally be a bit higher, due to the facts that salaries will be higher, proper education and training is needed, the correct certifications are required, client-needs are more complex, and you must come across with a more serious and respectable brand image.
To help new companies such as yours get going we have created a cost-effective Compact plan that helps you find your feet.
Tracking time and attendance: going beyond the basics
As your own agency grows it becomes more crucial to ensure you and your employees are paid correctly in order to keep both them and you happy. Thus, for anyone managing a staffing service that has found success for a year or two, accurate time tracking turns into an essential part of their operations. It is also beneficial for the employers because an Time and Attendance system tightly integrated with scheduling, leave and pay software such as PARiM offers more accurate pay tracking that prevents pay disputes and more comfortable working processes overall.
While seemingly tracking time seems like a trivial task – modern business processes complicate matters significantly and not all software are fit for professional temp staffing agencies. Consider – some of your staff maybe paid by the hour, some maybe full-time, some may work on bank holidays, when separate rates apply, some may work most of their time on weekends, when another set of rules governs pay.
Also, some of your workers may be limited by certain legally defined working time rules and some others by another set of rules. Setting up different pay, working time, leave and other settings for different types of workers is something that we at PARiM are focusing on with our upcoming Employment Types and Pay Manager releases in Q3/2019.