Every day, recruiters are discovering just how profitable and easy contract staffing can be. Its profitability is tied directly to the fact that many companies have short-term staffing needs, and they are always looking at ways to reduce their overhead costs. Consequently there is a huge demand for professional and technical contractors. This need opens the door for many recruiters to solve a staffing problem for companies. In 2004, Top Echelon Contracting paid out over $3.3 million in recruiter profit. A large majority of that money was paid to direct placement recruiters who decided to take a serious look at contracting.
The cash flow is steady
Everyone knows that direct-placement recruiting can often be a roller coaster ride, with many ups and downs in cash flow. But contracting is completely different. Contracting provides a steady cash flow because contractors get paid for every hour that they work; as a result, so do you (the recruiter). In addition, most clients pay invoices on a weekly basis, which means that’s how often the recruiter will be paid.
Don Fredrick of Executech, Inc., in Ann Arbor, Mich made his very first contract placement last year, and he will tell you that the contracting component was very easy. He placed a Software Engineer at his client for a 10-month assignment. During those 10 months, Don earned $20,275.16. That equals a steady income of $2,027.52 per month. Everyone would sleep better knowing that kind of money was coming in each month, regardless of how many direct placements they made. And you can enjoy that kind of reassurance, as well—with the help of contract staffing.
Many recruiters experience the same type of consistent cash flow that Don Fredrick did when he made his first contract placement. Add a couple more contract placements into the mix, and the checks will continue to arrive on a steady basis. Plus, look at the flexibility contract staffing offers a recruiter. . . Want to take a day off work and not even look at your telephone? Go right ahead, play golf, go to the movies, take a trip—the contractors you placed will continue to make money for you.
Start with the same client base
You don’t have to build a whole new client base in order to tap into this new, steady cash flow. The chances are very good that you can start doing contract searches with the same client companies you are working with right now. Every year, more and more companies across the country are opting to utilize contract employees for a number of different reasons. For example, during lean economic times, companies use contractors with a specific skill set to meet deadlines or work on projects without having to hire a full-time employee.
Companies love the flexibility that contract staffing provides, plus the cost usually comes from a different budget than a direct (perm) employee. Contracting also affords companies the opportunity to “try before they buy” if they find a candidate attractive, but they’re not sure if they want to hire them on a direct basis. By doing contracting, you can become a full-service recruiting firm. And with the help of a back-office service provider, it’s not only possible, it’s also quite easy to do.
Outsource the back-office
The most important thing to remember about a back-office service provider is the fact that they become the employer of the candidate you recruit for a contract staffing job opening. When you utilize the services of a back-office, it means that you outsource the tasks associated with contract placements: legal, financial, insurance, taxation, benefits, payroll, invoicing, government paperwork, time sheets, and other administrative issues. Trying to tackle these issues on your own while still running your business can be a tremendous headache, but by utilizing the services of a back-office service provider, it can be a piece of cake. Meanwhile, you continue to do what you do best: recruiting and making more money. Basically, you act like a broker who brings the contract placement to the back-office service provider after you match the contract candidate to the contract job opening. (This function is the same regardless if it is a direct hire or a contract placement.) Once you give the back-office service provider all the statistical information about the candidate and the client (names, addresses, phone numbers, etc.), they should handle everything else from that point on.
Building better client relationships
With contracting, you’ll also be able to make more money for a longer period of time due to the better relationships you’ll build with your clients. As mentioned previously, the majority of companies prefer to utilize both contract and full-time (direct) workers. If you can provide them with both, then they will be more likely to think of you no matter what kind of need they may have. In other words, you’ll become what is called a sole-source provider, and your name should be at the top of their list when they have ANY staffing need.
Even if a client’s department manager can’t technically hire due to a "hiring freeze" based on their company’s capital budget, in most cases they can still hire contractors using their operating budget. If you can provide them with a contractor who will help them meet their deadlines while still honoring the corporate hiring freeze, they will certainly be grateful and more apt to use you for their hiring needs in the future.
Or say, for instance, that there isn’t a hiring freeze, but that a client needs to fill a position immediately. They can do so with a contractor while they search for the "perfect" direct candidate. And if they end up hiring your contractor for the position on a direct basis, you’ll be entitled to both the hourly contract income and the direct placement fee. In another situation, they could be looking for someone to simply handle the payroll and be the employer for a retiree or intern they want to utilize for a couple of months. With the help of a back-office service provider, you can handle of all of your clients’ needs.
And while you’re improving relationships with your clients, you can improve your business at the same time. With a steady flow of contracting income each month, you won’t be as prone to accept direct search assignments that are not really in your area of expertise. You’ll have both the confidence and the flexibility to turn them down and only focus on those assignments you want to work. So in essence, you’ll be improving relationships with your top client companies while gaining the leverage to cut ties with those clients who consistently debate with you over your fees or other issues.
Generating more revenue and developing better client relationships are both ways in which to build more value into your business. This provides an excellent exit strategy for selling your business and retiring in a comfortable fashion. When the owner of a small direct recruiting firm decides to retire, there usually isn’t much left to sell. However, with a stable of working contractors built into your business, there is definitely something to sell. The value of contracting is in the contractors themselves and the money that those contractors generate, both now and in the future.
Right now, you might be saying to yourself, "Okay, all of this is fine and good, but how in the world do I get started in contracting? I don’t know the first thing about it." Don’t worry about that. You do know something about being a recruiter, and that is still the main component to making contract placements.
There are two things you should do up front. The first is to find a quality back-office service provider. This back-office service provider should become the contractor’s employer so that the contractor gets a W-2 at the end of the year. (As a word of caution, if a contractor is going to be paid on a 1099 instead of a W-2, there are many potential issues with taxes, insurance liability, etc.) The W-2 employer (back-office) should handle the following: federal and state taxes, all new-hire paperwork, legal contracts, co-employment liability issues, workers’ compensation, time sheets, invoicing, collections, payroll funding, paycheck processing, expense reimbursements under IRS guidelines, and the general day-to-day administrative functions. Plus, it is a huge advantage if the back-office service provider you select offers benefits such as medical, dental, vision, 401(k), etc. Benefits are critical in today’s business/employment arena and will help you recruit and maintain quality contract candidates. Aren’t you glad you won’t have to worry about any of that stuff? And your clients will be glad, as well. This is a win-win-win situation!
The next thing you may want to do is spend an hour or two reading about contracting. Top Echelon Contracting has developed a Contract Training Kit that explains how a direct placement recruiter can incorporate contract staffing into their business model. This Contract Training Kit is available for free at www.TopEchelon.com/Recruiters/Contracting. This kit will give you some basic information, including definitions, rate negotiation tools, marketing, sample paperwork, advantages to all parties, etc.
Hot contracting fields
Now that you know the "basics," where do you go from here? Well, according to data regarding contract placements that recruiters made through Top Echelon Contracting in 2004, there are a number of industries that are red-hot in the area of contracting. By far, the hottest industry is that of Healthcare, which led the way with 37% of contract placements last year. Information Technology was next at 26%, followed by Engineering at 13%. Business Professionals and Support Staff was also in double digits at 12%. In 2005, there has been a huge increase in the number of Accounting and Finance professionals placed on contract assignments.
If you’re seriously considering adding contract staffing to your current business model, these are a few of the industries you may want to explore. If you already work in these industries, it should be relatively easy for you to begin providing contracting services to your existing base of clients. And it’s a good bet that they’ll thank you for it!
The only thing temporary is the position
There are countless recruiters who have used contracting to not only bolster the bottom line of their business, but also to lengthen their careers in the industry. There are some recruiters who simply would not have survived the latest recession without the benefits that contract staffing provides. In other words, contracting can help you stick around as a recruiter and not become one of the casualties of a volatile economy.
The popularity of contract staffing with companies continues to grow each and every year. As previously illustrated, it’s proven to be practically recession-proof, as well. In fact, hiring officials may be more prone to utilize contractors during the hard times of a recession, since constraints have invariably been slapped on their budgets. So take advantage of companies’ willingness to use contract workers on a regular and consistent basis. If you do, you might find that contract staffing will become a steady and profitable part of your career.