How to Start A Direct Hire Division within Your Staffing Firm
(as seen in the July/August 2007 Issue of StaffDigest)
The direct hire market has been very hot with double digit growth rates over the last three years and another good year is predicted for 2007. As a result, you may be thinking of adding a direct hire division to your staffing firm. Direct hire can add significantly to your profit margin as well as diversify your business without the amount of upfront investment that might be required in other market opportunities. Below is a listing of some of the things to consider for a successful launch of a direct hire division within your firm.
The direct hire business is especially attractive since it is usually performed with a relatively low fixed cost and the fees typically have a dramatic impact on both gross and net margins in most staffing firms.
Why start a Direct Hire group in your staffing firm?
- Increase Gross Profit and Net Income
Average direct hire fee ranges are from 20 to 35 percent depending on industry, position level, skill set and candidate supply and demand. By using your current resources i.e. existing database and recruiting talent, the fixed costs when launching a direct hire business are relatively low.
Offer one stop shopping to block the competition and deepen your relationship
By proving that your firm can address more than one need for your clients, you provide your customers with the opportunity to address all of their hiring needs with your company rather your competitors. They have an established relationship with your firm and the addition of a high value service like direct hire makes your firm more a business partner to your customer.
Where to Start?
- Existing customers and candidate referrals
You already have valuable candidate and prospect information to work with to build those important client relationships. Use your company database to market your new division. Survey your current and prospective customers on their direct hire needs and study industry and market sources for those specialty employment areas where high growth (and high potential for success) can be yours.
- Who should work in your direct hire division?
First, you should make your direct hire line of business a dedicated and separate function. Staffing coordinators that have proven themselves top recruiters in the higher value areas of your business or have some prior experience in direct hire can make a good choice. Your associates should have the contacts, the industry knowledge and proven ability to get the job done.
Alternatively, you can hire people out of the industry your firm services. They have contacts, understand what your potential clients are looking for and know the terminology and understand the business issues.
Compensation
- Distinct Direct Hire Plan
An excellent way to jumpstart your direct hire business is to develop incentive sales programs. Use a cross-sell program that gets everyone in your firm working to promote your direct hire division. When your staffing coordinators are talking to clients, have them talk to your established contacts about your direct hire division and offer the incentive to cross-sell your firm’s services. You are increasing awareness of your staffing and direct hire offerings and your associates are motivated to sell into a client with more than one service.
As for your direct hire recruiters, the industry standard is for these people to be compensated with draws against commission. Other approaches such as commission only or a relatively low base salary plus commission are often used as well. Effective direct hire recruiters should have the ability to earn at the top of their internal peer group.
Which Business Model?
- Placement Types
When starting your direct hire division, I would recommend starting out with contingent placements due to the lower barrier to entry. Contingent recruiters are only paid when a successful placement has been made. This approach does require your staff to take excellent customer requirements and work diligently to maintain a sense of urgency with your client company contacts.
Another placement model to consider is “Contained Search.” Contained searches have a retained fee portion that is typically paid upfront and consists of 1/3 to 1/5 of the total fee. The remainder of the fee is contingent on a successful placement. This can be a great launching pad for your high demand/low supply skill sets clients.
Retained placements can be very lucrative, but are probably not a good entry point for most traditional staffing firms. This type of placement requires a much longer recruiting cycle because of the higher level skill set needed as most retained recruiting firms deal with C-level candidates. Typically, these searches go to established players with a long-term market presence.
- Information Systems
One of the most important questions to ask yourself when launching a new line of business is how will I support it? Different divisions have different fees structures, legal implications and technical needs. Does your staffing and recruiting system have the flexibility and scalability to handle different divisions? Your staffing and recruiting software must be flexible and feature rich enough to meet these diverse business needs.
Conclusion
One of the traits of a successful, growing staffing firm is its diversity and balance of services. Each line of business in a blended staffing firm actually supports and reinforces the success of the others. Not only will offering a diverse range of services help to cement relationships with your customers, it helps to build a stronger financial foundation for your firm.