How to start a recruitment agency

The two businesses share a storefront and split at the payroll. A recruitment agency places permanent employees: the client hires the candidate onto its own payroll, and the agency earns a one-time fee for the search. A staffing agency employs temporary or contract workers itself and bills the client for their hours, which means it finances wages every pay cycle while client invoices wait on their terms.

That split decides almost everything downstream: startup capital, insurance, cash flow, and what a bad month looks like. A perm desk can start with a laptop, a phone, and runway; a temp desk needs payroll funding arranged before its first assignment. Most founders should pick one model to start and add the other only after the first is repeatable.

This guide covers the recruitment side: direct-hire placements sold on contingency, engaged, or retained terms. If the temp-and-contract model is the business you want, start with the staffing guide instead; it covers payroll funding, workers’ compensation, and pay-and-bill.

The product a recruitment agency sells is a fee model, and each model is a different pitch to a different buyer. Contingency is the default for a new perm desk: no fee until the candidate starts, priced as a percentage of first-year salary. Published guides put typical contingency fees anywhere from the mid-teens to around 30 percent of first-year salary depending on seniority and market, as of August 2026.

Retained search flips the risk: the client commits fees in installments across the search in exchange for exclusivity and a deeper process. An engaged (or container) search sits between the two, with a smaller upfront commitment usually credited against the placement fee on completion.

For a new agency the practical answer is usually contingency first. It is the easy first yes because the client risks nothing but time, and every contingency fill is the audition for engaged and retained work later. Whatever model you sell, put the percentage, the guarantee period, and the payment terms in writing before you work a search.

Hiring managers do not want a recruitment agency; they want the person who has already filled this exact role in their market and can prove it in the first sentence. A niche desk, built around an industry, a role family, or a metro you already know, is how a one-person agency looks like that person from the first email.

Pick from what you already know. A defensible niche usually comes from your last desk, an industry you worked in before recruiting, or a candidate network you already have. A useful test before committing: can you name twenty companies that hire this role and ten candidates you could realistically represent this quarter? If not, keep narrowing until you can.

Specialists win perm work for structural reasons, not branding ones: a live candidate pipeline when the search starts, fluency in compensation and counteroffer risk that clients pay fees for, and a desk a client can describe to a colleague in one sentence. Generalists compete on price with every other generalist in the inbox. You can widen later from a niche you dominate; narrowing after a year of taking everything is much harder.

This is general education, not legal or tax advice. Recruitment agencies operate under different rules in every country, and inside federal countries the rules change again by state or province, so the honest version of this section is a pattern, not a checklist: form a legal entity, register it where you conduct business, find out whether your jurisdiction licenses or registers recruitment activity for your niche, and confirm the whole setup with local counsel before you invoice a client.

In the United States there is no single national recruitment-agency license, but some states regulate the activity directly: Massachusetts, for example, licenses or registers employment, placement, and staffing agencies. Form the entity with an attorney or accountant’s advice, obtain an EIN directly from the IRS for free, and check the secretary of state plus the labor and workforce regulators in every state where you, your clients, or your candidates operate.

For the reader in the UK, where “recruitment agency” is the everyday phrase, the law splits the industry in two: an employment agency finds work-seekers for employers to employ directly, while an employment business engages workers itself and supplies them to clients. Conduct rules apply to both, and some sectors, such as entertainment and modelling, follow different rules. A perm desk is the first kind; if you also plan to run temps, you are the second kind too, and the staffing guide’s funding chapter applies.

Insurance follows your contracts more than your statute book. General liability and professional liability, sold as professional indemnity in the UK and much of the Commonwealth, are common commercial coverages for a placement desk, and client contracts often specify types and limits before you can be onboarded as a supplier. Price coverage with a licensed broker who knows recruitment, and read the insurance clause in every client agreement before you sign it.

The defining economic fact of a recruitment agency is what it does not have to fund. On a perm desk the client hires the candidate onto its own payroll, so there are no weekly wages to float while invoices wait. Temp and contract staffing carries exactly that burden from the first assignment onward, which is why the staffing guide spends a full section on payroll funding and factoring and this one does not need to.

What a perm desk funds instead is the gap between work and revenue. A contingency fee is invoiced when the candidate starts, which can land months after the BD conversation that opened the search, and your terms may include a guarantee period during which a fee can come back if the hire leaves. Model your personal runway across those first months, and treat fees inside the guarantee window as money you cannot spend yet.

Keep the cost base variable while income is lumpy. The unavoidable startup costs are the entity and counsel, insurance, a lean software stack, and steady business development; the largest real cost is usually the founder’s time before the first fees land. Offices, paid job boards, and headcount are scaling decisions, not starting requirements.

A new recruitment agency wins its first clients from three motions, usually in this order: people who already trust you, candidates who open doors, and companies hiring right now.

Start with the trust list. Former employers, hiring managers you filled roles for at your last desk, and candidates you placed who now manage teams already know your work. Tell each one what you now do and what a good search looks like for you, and ask who they know with a hard-to-fill seat. The first client usually comes from whichever of these conversations had a real open role behind it.

Then lead with a candidate. The industry term is MPC marketing, for most placeable candidate: a candidate with in-demand skills, realistic expectations, availability to interview, and consent to be represented into the market. Instead of asking a stranger for a meeting, you show them a person they want to hire, and a hiring manager will reply about a specific person long before they reply to a new agency’s introduction. Market only candidates who agreed to it, send only candidates you can deliver, and keep profiles anonymized until the client engages.

Finally, work the companies hiring right now. Open roles are the closest thing recruitment BD has to intent data: several postings in your niche, a role reposted after weeks open, a funding announcement, or a newly arrived executive all mean budget and urgency this month. Message the manager who owns the role rather than the careers inbox, keep the first note specific and under a hundred words, and follow up until there is an answer either way. The full playbook, scripts and objection loop included, is in the client-acquisition guide linked below.

Recruitment software is a mature market that will happily sell a new agency ten subscriptions before its first placement. A starting desk needs three things: a system of record for candidates, clients, and searches; a professional way to send and book, meaning a business email domain and a calendar link; and a client BD motion that runs every week. A spreadsheet can be the first system of record. The BD motion cannot be skipped, because it is the thing that pays for everything else.

On the client side, dreach, which is our product, can carry the repeatable part of that motion. It finds companies from hiring signals in your niche, starts new prospect conversations through email or LinkedIn in your voice, follows up until there is an answer, and books the intake call. SMS or iMessage is used only after the recipient requests it or when the agency has another documented, counsel-approved basis. It does not source candidates, run the intake call, negotiate fees, or replace your system of record; the recruiting stays yours.

Add paid tools when a constraint appears, not before: a sourcing tool when the candidate pipeline thins, an ATS when the spreadsheet starts dropping threads, a data provider when you run out of contacts. The tool guides on this site compare the options when you get there.

Most new recruitment agencies do not fail on recruiting skill; they fail on the business wrapped around it. The patterns repeat often enough to name: