If you have considered some of the issues of being a recruitment entrepreneur and still decided to go ahead, then let me tell you the most important point to be considered, MONEY. You should have enough money to keep you going for at least six months (a year if you plan to hire a couple of employees). This would include your expenses for stay, food, travel, employee salaries, communication & other miscellaneous spending.
Luckily recruitment is a business that you could very well start without an office and with just a telephone (mobile) and a job board login (or a LinkedIn login for that matter). Money for six months would be sufficient as most recruitment cycles (at junior-mid level employees) would be around 3 months and that should be enough to get your cash flow going.
So let’s start with first understanding the larger Hiring/Recruiting landscape. There are a large number of intermediaries/actors in the hiring/recruitment space– the hiring firms themselves. Most large firms depend on a host of sources for their recruitment. Recruitment firms, social media, campus recruitment, company website (careers page), advertised recruitment (print advertisements), job boards, etc. The candidate sourcing technique used depends on the type of role, the level of job, the volume of hires, the urgency in hiring, and of course the budgets.
Entry-level recruitment mostly happens from campuses, junior and mid-level through internal recruitment teams, company careers pages or recruitment agencies, senior levels through Executive Search firms or through references, and temp jobs through staffing firms.
Read more: A guide to using LinkedIn Recruiter.
Here Are Some Recruitment Terms You Need To Know
These recruitment firms help identify CXO level hires (and are typically referred to as ‘Search’ firms). These are the blue-blooded big boys in the recruitment industry. ‘Search’ is purely relationship-based and needs many years of work experience, industry knowledge, and familiarity with a wide range of senior professionals within the industry.
These assignments are only a few and far between, highly confidential and do not come by easily. Most firms only work with a retainer fee (guaranteed fee irrespective of closure) and their fees could be anywhere between 33 to 50 percent of the annual salary offered to the candidate.
These typically handle mid and junior management-level recruitment and are sometimes referred to as ‘Selection’ agencies. These are the easiest to start (even as a stand-alone recruitment consultant), the recruitment cycles are comparatively shorter and candidates more accessible (found on job boards and LinkedIn). Some firms who do only senior-mid level hiring (other than CXO) also call themselves ‘High-Value Selection’ firms.
These firms provide resources to clients on a contractual basis mostly on a monthly/weekly/hourly fee. The resource is on the rolls of the staffing firm and the salary is paid by them. This is mostly a volume play with modest margins.
4. Specialist Staffing
This is essentially temp staffing in an area of high skills where resources are required only for specific time or projects, like software development, oil rig engineers, trainers, etc. These are mostly billed by the hour and is considered to be a high-margin business.
This is a relatively new service wherein a hiring firm outsources its internal recruitment team. The RPO firm’s team is located on the hiring firm’s premise and effectively operates as the internal recruitment team. They handle the entire end-to-end recruitment function including handling vendors. Many recruitment agencies are using this kind of engagement to bring higher efficiency and lower their costs.
6. Outplacement Agency
When large firms are downsizing or when some firm is shutting down, they engage an outplacement agency to place their displaced employees in other jobs. This is a very difficult task specifically during a downturn. Also, many of the employees terminated need to acquire newer skills to become employable again. Here, the fee is typically charged as a fixed fee per employee plus an additional fee for a successful placement.
7. Services Firms (Manpower)
These are firms that not only provide the manpower but also supervise them. Here the billing is not only for the resources but also for the output or a combination of both.
8. Assessment Partners
Apart from various other uses of assessments like organizational development & competency mapping, many hiring companies use a variety of assessment tools for recruitment. These could be psychometric tests, aptitude tests, interviews, assessment centers, and situational judgment tests. These could be conducted in person, with pen and paper, digitally as well as through gamification. Mostly a combination of tests is used which greatly enhances the validity of the findings.
9. Job Boards
Job boards are where job seekers post their CVs/Resumes and where hiring companies & recruitment agencies post their jobs. It is more like a marketplace where the recruiter & candidates find each other.
10. Applicant Tracking System
ATS or applicant tracking system is largely used by hiring organizations to manage their entire recruitment processes including handling job role approvals, tracking applicants for each job, the entire assessment process of various stages, and communication with candidates & hiring managers.
Many times it also includes VMS (Vendor Management System) which assists in handling candidates presented by various recruitment agencies and their billings & on-boarding. Many Applicant Tracking Systems are part of a comprehensive HR management system or an ERP (Enterprise Resource Planning) system.
11. Recruitment CRM
A CRM on the other hand is used by recruitment agencies to handle their relationship with their clients as well as their candidates. It helps agencies monitor their client/jobs pipeline, and their candidate pipeline as well as helps them monitor recruiter performance and manage its invoicing.
12. Temping Payroll System
These are essentially payroll systems integrated with client and candidate management tools. It would require a country-specific payroll engine (to handle employment-related statutory calculations/filings. It would further need integration with an accounting system to handle client invoicing and candidate/employee payments.
13. Recruitment/Temping Associations
Most countries have such associations which largely work as lobbying/pressure groups to handle employment/staffing-related government policies. Registering with such an association would not only help in networking but would also help keep abreast of all the latest policy matters.
Some Other Jargons Associated With The Recruitment Industry
Recruitment agencies get paid only if there is a successful closure and the candidate joins the client company.
A retainer (fixed amount or anything between 25% to 50% of recruitment fees) is collected by the recruitment firm before starting the assignment. This is non-refundable irrespective the position is closed or not. This is basically charged to cover for the effort being put in to carry out the assignment irrespective of the outcome. In case a candidate joins then the remainder of the fees is paid.
3. No-Poach Agreements
Many organizations which employ people with similar skills sometimes sign an agreement to not hire each other’s employees. In many countries, this could be construed to be anti-labor and therefore unfair trade practice.
4. Free Replacement Clause
This is the period of time during which a recruiter needs to provide a replacement free of cost in case a candidate (who joined) leaves a job within such a period. This could range from a month for junior positions to about six months for senior positions.
5. FTE Units (Full Time Equivalent)
This is a ‘contract staffing term’ wherein resources are hired by the hour or on a weekly basis. FTE unit is equivalent to the total number of hours worked by a full-time employee. So if a full-time employee works for 8 hours a day, then 4 contracts worked engaged for 2 hours on a day would be equivalent to one FTE.
6. Internal Recruiter
These would be recruiters from an employer company who essentially carry out the recruitment process or handle candidates referred by recruitment agencies.
A loosely used term for recruiters. However, this would refer to a recruiter who identifies a candidate who is not looking for a job and convinces her to look at a new job opportunity. Therefore any recruiter who finds candidates from a job board or who speaks with candidates who have responded/applied to a job posting cannot be referred to as a ‘Head Hunter’.
8. Job Description
A statement describing the roles, responsibilities, duties, and scope of a particular job.
9. Job Specification
The minimum qualifications and skills required to perform in a particular job.
10. Pre-Employment Screening/ Background Verification
Verification of the candidate’s qualifications, employment record, claims of compensation, and uncovering criminal history if any or other past employment issues before hiring a candidate.
11. Competency Based Interview
An interview technique designed to assess specific competencies of a prospective hire. Also referred to as ‘behavioral interviews’.
12. Difference Between Curriculum Vitae (CV) and Resume
Curriculum Vitae is a Latin expression loosely translated as ‘ The Course of my life’ and is usually a detailed description of your career, skills, education, publications, achievements & other interests. A resume is a French word meaning ‘summary’ and therefore is a brief description of your career, skills & education typically restricted to a maximum of 2 pages. However, both these terms are interchangeably used in the recruitment world.
With this brief overview of the recruitment industry, it is now time to get started. Much as you can start anywhere and with anything, I feel a ‘Recruitment Agency’ (Selection firm) handling mid to junior level would be the lowest hanging fruit to get started in this industry.
You could even start off alone with just a mobile phone, a computer, an internet connection, and a job board/LinkedIn recruiter subscription.
Read More: The Recruitment Prerequisites- Getting Started.
Frequently Asked Questions (FAQs):
1. How Much Money Do I Need To Start A Recruitment Business?
tly, to get going all you need is your laptop and mobile phone. But yes, every business requires a certain amount of cash and it’s worth putting something down in the beginning. You’ll need to register your company, build a website, create a brand identity, set up a bank account solely for your business, set up a LinkedIn company page, and yes the last but the most important of all, you’ve to start posting jobs. This might cost you around $50-60 per month and the add-ons like investing in the right ATS and CRM software, advertisements, investing in marketing tools and such can cost you another $90-180 per month. This is just a rough estimate that we’re providing you.
2. Where Do I Want To Go By Becoming A Recruitment Entrepreneur?
This is one such question you need to ask yourself before starting your recruitment entrepreneurial journey. Your personal and business goals are interlinked with each other. If you’re starting a business to fulfill your personal goals then so be it.
- Seek investors who share a similar mindset like yours
- Ask yourself time and again whether your goal has changed
- Do you want quick profit or do you love the rush that comes from rapid growth?
The more answers you have, the better you’ll understand where you’re headed towards.
3. What Risks And Sacrifices Does A Recruitment Business Demand?
These are some potential areas of risk in a recruitment business:
- Most third-party recruitment is done on a contingency basis. This means that your client will pay you only for a complete placement that you make and not before that. If the entire thing falls apart in between, you get nothing! Read more on what it means to hire on a retainer basis.
- Recruiters make money only when companies are hiring new employees. An economic downturn can cause serious problems. But, we have a resource on how recruiters can combat an economic crisis.