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How to Start a Staffing Services Business

If there's one thing that can give any business owner a headache, it's staffing. Soothe your clients' pain by finding and placing the best employees for their needs.
February 21, 2001
URL: http://www.entrepreneur.com/article/37932

This is a good time to be in the staffing industry. Despite the 2000-2002 economic downturn, the industry is picking up steam again, and future prospects are bright. In the first quarter of 2003, U.S. sales of temporary and contract staffing services rose 5 percent, to $13.1 billion, according to the American Staffing Association (ASA). That marked the third consecutive quarter of growth after six straight declining quarters.

The personnel supply services sector, which includes the staffing industry, is projected to grow rapidly over the rest of the decade as the economy expands. In fact, the U.S. Bureau of Labor Statistics (BLS) predicts that more jobs will be created in personnel supply services than in any other industry over the next few years. Further, BLS forecasts that personnel supply services will be the fifth fastest-growing industry through 2010.

Broadly speaking, staffing services are all of the following:

Types Of Staffing Services

Now that you know, in the very broadest sense, what a staffing service is, let's discuss the different types. Here they are:

Although it's important to understand the distinctions between these types of staffing services, keep in mind that the lines between them have become indistinct and, in fact, have nearly disappeared. Many services do all these types of staffing.

What's Inside

Staffing Service Sectors

The industry gets even more interesting when you examine the different sectors within it. The staffing services industry is divided into the following sectors:

 

Target Market

Finding Your Niche

Traditionally, staffing services have operated in all sectors of employment. Increasingly, however, staffing services operate within a niche market. The many specializations that exist today make the staffing industry much more complex, as well as far more interesting, than it has ever been before.

As you think about niche possibilities, you should consider each of the following factors:

 

Start-Up Costs

The staffing industry has higher startup costs than do many other industries--for a couple of reasons. A home office isn't usually a reasonable option. (You don't really want all those people traipsing through your house, do you?) Also, you'll have to meet payroll immediately, even though your business may have no income for a few months.

That said, how much money will you need to get your staffing service up and running? Some experts suggest that you double the amount of money you think you might need.

Your start-up costs will depend greatly on the following factors:

Start-up costs can range from $58,000 to $127,000, and you should have a suggested operating capital of between $80,000 to $135,000 in the bank.

Operations

As a general rule, front office work is "people work" and that involves dealing with clients, employees and applicants, either in person, on the phone or at the computer. Your sales staff will usually be out of the office by about 9 a.m. to drum up clients for you, so this section is about the people work those in the office (for instance, recruiters, employment counselors, coordinators, etc.) will be doing.

Most staffing services are open from 8 a.m. to 6 p.m., or some close approximation thereof. During that time, you should always have someone at the front desk, ready to greet those who walk in. The majority of people coming through your doors will be applicants, since clients rarely visit and most employees come in only occasionally (for example, to pick up a paycheck).

Once your staffing service is up and running, you'll no longer be sitting around waiting for the phone to ring. In fact, you (and your employees) can expect to spend a lot of time on the phone, especially in the morning, when staffing services invariably buzz with activity.

So who exactly will be phoning you? Prospective employees, current employees and clients--that's who. They'll be calling you to request information, report availability, place a work order, cancel a work order or report a crisis.

These categories should cover most of the calls your office receives on a typical morning. But incoming calls are only half the picture. Outgoing calls are the other half. Following are some of the types of calls you and your front desk personnel can expect to make: arrival calls, second-day calls, placement calls, replacement calls, courtesy calls, sales calls, follow-up calls and verification calls.

Location, Location, Location

This saying might hail from the real estate industry, but it's equally true for the staffing industry. Office location does matter, and generally speaking, your home is not a good one. You need a professional atmosphere in which to test applicants, interview likely candidates, train employees and hold the occasional business meeting.

Generally speaking, anything from a strip mall location to a street-front location to an office in an industrial park can work for a staffing service. As you scope out possible territory, you should consider all of the following:

 

Income & Billing

How much can you expect your business to make in gross sales? These figures vary wildly in the staffing services industry. Staffing experts say that privately held companies average somewhere around $750,000 a year. But we talked to several owners whose businesses make closer to $15 million in gross sales. More than one owner topped $1 million in sales the very first year.

Marking It Up

The profit for staffing services is in the markup they add to the price of an employee's labor. There's a huge range for markups in the staffing industry, but several owners noted that industry markups have increased in recent years. In fact, several owners noted that although industry markups have slipped in recent years, markup can remain high even in a slumping economy because there aren't that many qualified applicants to work with. In addition, today's workplace requires more skills and therefore more training.

Wide markup ranges exist even within the same company. For example, the markup for PDQ Personnel Services in Los Angeles is anywhere from 25 to 75 percent.

To determine the amount of markup you can earn for a particular type of placement, you'll need to consider all the following factors:

 

Marketing

Traditional advertising can be effective in the staffing services industry, as long as you do it well. To produce an effective ad, you must first make clients aware of the advantages of using a staffing service. These advantages include the following:

Notice that the above points, while important, are very general in nature. In theory, they are true of any staffing company. Put them in your ad, by all means. Just don't imagine that they do anything to differentiate your service from other staffing services. The way you do that is by listing those features that set your company apart from the rest. Emphasize the benefits your clients receive from using your staffing service.

Advertising Options

Here are some typical advertising strategies:

Finding Employees

There are many ways to find employees. Studies show referral is the most effective (i.e., least expensive and most productive) way to recruit employees. Some staffing companies receive as many as 40 percent of their new hires from referrals. Rita Z. estimates that referrals comprise about 36 percent of her applicants.

You can also advertise to find employee prospects. The following are methods of advertising for employees:

 

Resources

Associations And Organizations

Professional Journals

Job Listing and Resume Posting Web Sites