Many successful search firms have built a profitable business utilizing the direct-hire model. As these firms plan for future growth, adding a contract or staffing division is often appealing. In theory, they should be able to take advantage of their long-standing relationships with their new interim offering. Likewise, the interim division should uncover additional perm opportunities as well.
However, hiring someone to spearhead a new segment of a recruiting firm can feel risky as they are the lone expert. Launching a new line of business with a completely different model and set of operations is daunting. So why would a firm take on such a challenge?
Once the division is up and running, the addition complements the other parts of the firm. For firm owners thinking of an exit strategy at some point down the road, the sale value of the firm becomes much greater. According to PE/VC firms that specialize in mergers and acquisitions in search and staffing, the increase in sales price can be substantially higher. The promise of future revenue by having contractors out on assignment is the reason for the increased valuation. The diversification of offering both perm and contract can also help during times of economic fluctuations. When there is a major shift in the economy, staffing can become the preferred offering to a firm’s clients.
Selecting the right person to lead the charge of implementing staffing is crucial. They need to have the experience to be able to come in and create all the policies and procedures as well as back-office functionality. In the beginning, payroll can be outsourced but eventually, most firms elect to bring it in-house. They also need the qualifications and expertise to support both business development and candidate recruitment. If all goes well, they’ll need the experience of hiring and leading additional salespeople and recruiters.
With any endeavor of this magnitude, there is always a risk. Foremost, a realistic budget for ample ramp-up time is paramount. It can vary significantly depending on the functional roles as well as industry focus. Margins can vary wildly as well. A firm can limit its risk by completing a comprehensive business plan using conservative data. Depending on the niche focus, the break-even point for profitability can be as little as six months or more than a year.
Firm owners can begin by collecting information from their current client base to see if the appetite for using staffing services is present. If there is interest, then putting together a plan and budget makes sense. Hiring someone at a director up to the partner level then becomes the priority. Once the leader has been chosen, refining the plan based on the anticipated margins can be beneficial. Firms should consider a path to partnership for this first hire to tie them to the performance of the new division. Setting expectations through benchmarks for scaling the team upfront will have everyone on the same page. Now the synergy between perm and contract will help make a firm much more valuable.
ABOUT R2R SEARCH
R2R Search is the Recruitment firm for Recruiting Firms and Recruitment Professionals. We cater to boutique firms throughout the US across all vertical and industry specialties. Representing candidates and clients across all business models to include Retained Search, Engaged or Container, Contingency Perm, and Interim or Staffing. To learn more about how R2R Search can help you, contact us.