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Understanding the Different Types of Recruitment Companies

Staffing agencies and recruitment agencies are not the same thing.

There are instances, where a recruitment agency can also be a staffing agency.

Depending on the type of candidate you are looking for, you may find it better to use a recruitment firm, a staffing firm, and RPO, or a mix.

First of all, familiarize yourself below with the following definitions and terms.

Contract employee (Common for Staffing Firm)

Typically a position that is not permanently placed within the client company; it may be for a short project or to cover while another employee is on a leave such as maternity or medical. In

most cases, there are no benefits and the contracted employee is on the staffing agency’s payroll.

Direct Hire (Common for Recruitment Agency)

Direct hire positions are permanent, usually full time positions with benefits. A direct hire position is one in which the client company utilizes the staffing/recruitment agency to identify, attract, retain talent for a fee. This employee’s payroll is paid for by the client, not the agency.

Right to Hire or Temp to Perm (Common for Recruitment Agency)

When an employer wants a full time employee but may not be sure if the employee will be a long term benefit or if the role will be changing with time and that person may not be suitable, they can “try the candidate out” via right to hire options.

During the temp to hire period, the employee is considered working for the staffing firm so all

payroll goes through the staffing firm.

Temporary/Contigent (Common for Staffing Firm)

Typically a position that could be used to cover a full time employee for a day or a year. In high growth companies, temporary employees can be put into place as the business scales until the actual job is defined indefinitely.

There is no guarantee that the position will become a permanent, direct hire position for the client. An employee understands they may have a position today, but not tomorrow. They are also aware there are no benefits provided.

In many situations, the employee may stay on after the original end date.

In some situations, it can even open into a permanent position or a full time permanent position, at which point the client company takes over the employees pay.

There are 2 Main Pricing Models for Staffing Agencies

A temporary agency firm finds and retains workers on their payroll.

Client companies, who need short term help (example: an agreement where a temporary employee covers for a full-time, permanent employee while they are on

maternity leave or medical leave). The agency sends temporary workers on an assignment until a specified time has past.

When a client is no longer in need of a temporary employee, they can exercise the right- to-hire; which essentially means the temporary employee is purchased from the agency and joins the client company’s payroll.

Bill Rate

Pay rate + Markup = Bill Rate


Markups are generally applied as a percentage on top of the Pay Rate. Markups can be considered to have three elements:

  1. Pass through costs that adjust over the contract (employment taxes)
  2. Fixed Pass through costs (agreed to costs like worker’s comp, insurance etc)
  3. Gross Profit (for the supplier)

The markup depends on a variety of factors – type pf employment, skillset, education, client

knowledge, length of assignment, amount of workers needed, among other things. Markups range from as low as 18% to 47%+

There are 3 Main Pricing Models of Recruitment Agencies

1) Contingent 2) Retained 3) RPO

Contingent Recruitment Firms

A contingent recruitment fee gets paid a percentage after a hire is made.
For example, if a client is looking for an accountant with a salary of $60,000 the recruitment firm will find the candidate and upon completion of a successful offer; they agency may be paid a fee (typically 25-35%) of the accountants annual realistic first year earnings. This means the client would need to pay $15,000.

Contingent Search:

Receive resumes from a variety of sources, internal, firms, ads, etc. Hiring managers usually vet through resumes received and the agency coordinates the interviews, negotiates the offer.

The client does not have exclusivity with any one agency and does not need to pay unless a successful hire is made.

Why Contingent Search Can Make Sense:

✓ Saves CEO/Leadership team time and money

✓ More affordable than leadership team doing it

✓ Reduced administrative burden

✓ Effort involved from team is reduced

✓ Improved process efficiency

✓ Offer a guarantee should a candidate not be ideal

✓ Good press and helps branding

✓ Usually quick

✓ No loyalty, if a client doesn’t like an agency or an agency doesn’t work well with a client, they

just go their separate ways

Retained Recruitment Firms

Working with a retained agency means there is usually an upfront fee associated to conduct a search and there is a partnership between the client and the recruitment company. It is an exclusive search, so the client only deals with one agency during that time.

For example, if a client is looking for an accountant with a salary of $60,000 the recruitment firm will find the candidate. An initial fee may be collected to start the search, a smaller fee after an interview is finished, and another fee after the candidate signs the offer letter. Or one large fee may be present upfront.

Usually, the fees can be 25-45% of the annual realistic first year eranings and for a senior level position, this type of relationship can be incredibly beneficial.

Retained Search:

Receive resumes from one agency, internal staff, ads, etc.
Retained agencies will only present candidate who match a parameters designed by the hiring managers; and they coordinate everything on behalf on the hiring manager.

The client has exclusivity with the retained agency.

Why a Retained Search Can Make Sense:

✓ Saves CEO/Leadership team time and money

✓ More affordable than leadership team doing it

✓ Improved staff morale when the right cultural fit is integrated with a high achieving team

✓ Improved ability to scale quickly as sales grow, expenses decrease

✓ Reduced administrative burden

✓ Effort involved from team is reduced dramatically

✓ Improved process efficiency

✓ Offer a guarantee should a candidate not be ideal

✓ Good press and helps branding

✓ Usually great for an involved search

✓ Specialized expertise from the recruiter regarding specifics about the types of candidates

the market has available; salary, benefits, what attracts candidates

✓ Open communication; quicker response rate

✓ Less time to fill a role

Performance Based RPO (Recruitment Process Outsourcing)

Why RPOs Can Make Sense:

✓ Detailed Search Parameters with hiring/leadership team to create singular focus on hiring need

✓ Singular, dedicated recruitment professional who responds within 24 hours to any questions/comments your team has or needs addressed

✓ Agency works with existing candidates you have and put them through our process

✓ Agency takes over any existing ads and revisit old resumes or previous candidates


✓ Agency promotes your brand to a wide net of potential applicants:


✓ Negotiate salary; as your advocate

✓ Do not present any candidates to competition

✓ Provide market analytics and education throughout the process

✓ Comprehensive follow up on candidate/client side (differs per firm but can include):

o Night before start o Dayofstart
o End of first day

Recruitment Process Outsourcing is a model where a client transfers all or part of its recruitmentprocesses to an external service provider.

o End of first week
o End of second week o End of 30th day

✓ Build, create, maintain referral programs
✓ Build, create, maintain virtual bench programs

✓ Constant brand awareness and promotion within your industry and the vertical of candidates ✓ Continuous market analytics and “feet on the street”
✓ Follow up with candidates and team for more successful onboarding
✓ Improved tracking and metrics

Why an RPO Makes Sense

✓ Less reliance on continuous placement fees; peace of mind that recruiting is always front of mind for your company and you no longer need to only “shop when hungry”

✓ Works in conjunction with entire team for all positions; freeing up time and saving money

✓ Improved company-wide morale when high achievers join means creation of a talent magnet company; increasing referrals of other high achievers

✓ Create and place advertisements where it maximizes your unique hiring needs

✓ A steady stream of VB, referral, MPCS means you are free to let go of under-achievers

and create a high functioning team

✓ Will not present your candidates to competitors

✓ If warranted, can confidentially poach candidates from competitors

✓ Improved workforce planning initiatives around your corporate growth goals

✓ Reduced time to fill

✓ Reduced cost per hire

✓ Reduced administrative burden

✓ Improved process efficiency

✓ Centralization and/or standardization

✓ Best practice process improvement

✓ Generated reports on activity and performance metrics (kpis per below)

o Update on ads posted
o Update on resume received
o Update on how many candidates screened o How many phone interviews
o How many face to face interviews
o How many offers/negotiations

What RPOs are Not

RPO is often misunderstood and confused with Human Resources Outsourcing (HRO). While RPO is focused on the sourcing and recruiting aspects, HRO is more concerned with the functional HR processes, such as input of information into HR systems, on-boarding paperwork administration, benefits administration or performance management.

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Understanding the Different Types of Recruitment Companies

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