By Andrew Stock

Tens of thousands of independent recruiters and small staffing firms operate in the U.S., with the vast majority of these businesses providing direct-hire placement services under a contingency basis. Yet, even for a decades-old small staffing firm of this nature, the value of the business lies solely in the people on the staff.  If the entire staff walked out the door at once, the business is practically worthless. 

But, it doesn’t have to be that way.Your small staffing firm will only have true value if there is a revenue flow even in the absence of its personnel.  And, the best way to secure long term future revenue flow is through contract placements.  This is the point where the ‘perm recruiters’ reading this article get glassy-eyed and begin to tune out.  Unless of course, they re interested in building solid financial security for themselves.   Ah, got your attention now?What’s Stopping You?Why do many small staffing firms and independent recruiters only offer direct hire placements to their clients instead of contract/temporary services (or a blend of the two)? 

This past week, I polled a few dozen members of the HireAbility recruiting network and asked them.  Eleven of twelve respondents answered with one or more of the following (listed in order of prevalence in my ‘mini-survey’):

• Not able to provide funding, payroll, and back office infrastructure
• A contract placement business is more time consuming per dollar of profit earned than direct hire placements
• Lack of knowledge about how to run a contract placement business

For those of you that want to potentially attract a seven figure check from an investor, let’s address these issues.

Addressing the IssuesT

he need for funding and payroll, avoiding the risk of acting as employer of record, and the burden of administrative tasks are easily the most common reasons I hear for avoiding contract placements.  And quite frankly, I’m surprised that I’m still hearing this as a ‘barrier’.  There are hundreds of companies that will happily take over these on your behalf for just a small percentage of the hourly profit.  This is one of the many reasons I’ve been touting formal recruiting networks like HireAbility for the last half-decade.Not only do they provide access to trainers, split placement partners and other tools, but you can also pawn off the non-recruiting tasks to a third party at a very minimal expense. 

I’m not going to beat this drum too much more as I feel like I’ve been saying it for years.  But please, do not allow this to stop you from building residual income, stability for your business and equity that you can turn into cash down the road.  The solutions are out there and they are plentiful.  You just have to take the first step and ask for the information.There is also that perception that managing the contractors themselves is too time consuming. 

This is only relevant for certain types of placements, and not the industry in its entirety.  For example, if you are placing low-priced administrative temps, then yes, you’re going to need high volume of placements to generate the same profit as someone who deals with higher-priced candidates.  It’s basic math and it still applies here.The same goes with the length of placement.  If you deal with short term temp assignments that last a few days or weeks, you’ll be doing a lot more work per placement than your peers who deal with longer term assignments. 

Personally, I found (as detailed  in an article from December of 2007) that I spent considerably less time on my contract placement than I’ve ever spent on a direct hire placement, and I was rewarded just as well (if not better once you consider the ancillary benefits to having a contractor on billing).And if you believe that there is less money in a contract placement than there is in a direct hire placement, I encourage you to throw in a $70 bill rate and a $45 pay rate into this online calculator and see how much money you get each month from a contract assignment!  Keep in mind, this contract calculator is estimating what you would receive after paying an external party to take care of all the payroll, funding, timecards, etc.And finally, there is the obstacle of education.  How do the uninitiated learn the ropes regarding the common terms used and ideal processes to incorporate into this line of business? 

In my opinion, the best way to get that information is to work for a contract staffing firm for a while first.  After all, this is how I learned to be a good direct-hire recruiter and would most likely work for this purpose too.   But if you’re beyond the point in your career where this is feasible, then I have an idea for you: just do it.When I made my first contract placement (detailed in the above referenced article from last December), I had very little experience with contract placements.  A contract job order landed in my lap from one of my usual clients.  I learned about pricing, burden, managing the client and candidate expectations, negotiation (slightly different than direct hire negotiation) and other topics by relying on my peers in the industry. 

As a member of HireAbility’s social network, I relied on the expertise of members of the network that approached me wanting to ‘split’ a placement with me (specifically the new contract job order I had just placed on the split placement exchange).   Once members of the network contacted me to work on my job opening, I built a relationship with select members and then pried as much information from them as possible.  Combining that information with the quick tutorial I received from the folks processing my payroll for me, I learned all I needed to know in order to get my first placement done.Does this make me an expert on contract placements?  No, not by a long, long shot.  But, it got me into the game and on the right path.  And what one man can do, so can any other (or so the saying goes).In other words, there are thousands of your peers who hold the knowledge you seek.  You just need to make a few relationships and ask the right questions in order to start building equity in your staffing firm in the very near future.  And surely, as a direct hire recruiter, you don’t have problems using a phone to build relationships and ask smart questions.

Read that last sentence as a challenge if it helps get you motivated to succeed.  And for all of you experienced contract recruiters that have read this far, please accept my apologies for letting your secret out.  That secret is: contract placements are no more difficult, yield more financial return and need not be an administrative or financial burden.