Top 5 Reasons New Staffing Agencies Fail: A Guide for Success in the Australian Labour Hire Market

Starting a casual staffing agency in Australia may seem like a great business venture given the flexibility desired by today’s workforce, but like most things in life it’s sadly not a get rich quick scheme. Tale as old as time: a staff member or casual worker decides to open their own agency because they perceive it to be straightforward and highly profitable. 

In a highly competitive market, new staffing agencies often encounter obstacles that can lead to their downfall. In fact, many agencies tend to go belly-up within their first year of operation. Success in this line of business requires careful planning and strategic decision-making. As a long-standing solution provider to this niche corner of the Australian recruitment industry, we’ve distilled our observations into what we believe are the most common reasons startup staffing agencies fail. We’ll also provide advice on how best to avoid that fate.

1. Underestimating the Workload:

Many newcomers to the staffing industry underestimate the sheer volume of work required to run a successful agency. This miscalculation often manifests in the following ways:

• Client Acquisition: Expecting clients to flock to a new agency in droves is a common misconception, particularly with those who believe themselves to be well-connected. Building reputation and trust with potential clients takes time. Even in cases where a business is not completely thrilled with their current agency, they may still choose to stay with them if it feels like the devil they know. For instance, in the education sector, schoolboards may be hesitant to trust a new agency with their staffing needs without a proven track record.
• Staff Recruitment: Similarly, recruiting a reliable pool of staff is a gradual process. Whether you’re hiring healthcare professionals, educators, or security personnel, it takes time to find the right talent and establish a pool of dependable workers. Until you have an established client list, it can also be harder to get workers on board without the promise of a steady influx of opportunities. Herein lies the chicken and egg ordeal of getting a new agency off the ground.
• Data Management: Underestimating the importance of efficient data management in an industry that handles a high volume of information can lead to chaos. In the community care and NDIS sector, for instance, managing client information and compliance records is crucial. Messy data management can result in costly errors and regulatory issues. As an extreme but realistic example, if a nurse is sent to see a patient with incorrect or incomplete information, such negligence could lead to injury or death.

 2. Unrealistic Revenue Expectations:

New staffing agencies often have overly optimistic revenue expectations. They expect quick returns without considering the time it takes to establish a reputation and build a client base. In comparison to the world of permanent placement, on-hire placement also has much smaller margins and therefore requires a large volume of weekly shifts to make meaningful profits.

Example: In the hospitality industry, a new agency may anticipate immediate success due to the constant influx of Working Holiday Makers that come to Australia every year seeking this type of work. However, competition is fierce, and it may take several months or even years to secure contracts with top hotels and restaurants. Managing a high number of smaller contracts can be done but would require much more effort. With lower profit margins, an agency is likely limited in its internal hiring capacity and therefore relying on a handful of individuals to run their entire operations.

3. Choosing the Wrong Software:

Investing in the right software is essential for the smooth operation of a staffing agency. New agencies sometimes make the mistake of opting for generic recruitment software when what they really need is specialised agency software tailored to their industry. Similarly, agencies may also commit to a software before they have sufficient staff or work lined up to justify the subscription cost.

Example: Within the NDIS, a staffing agency might choose to go with a large and established “one-size-fits-all” option. Ultimately, they will struggle to manage the unique requirements of the scheme, such as compliance checks, case notes and reporting. They may also run into the issue of dealing with a provider unwilling to develop features for a specifically Australian requirement. A specialized NDIS agency software can simplify this process.

4. Neglecting Shift Data Integration:

What we see quite frequently with startup agencies is an initial attempt piece together several disparate and cheap software solutions to Frankenstein a working system. Efficiently managing shift data is crucial, especially when dealing with high volumes. With a bunch of different systems, they run the risk of data entry errors from having to re-enter the data into spaces that don’t integrate with one another. Neglecting this aspect can result in billing errors, payroll discrepancies, and dissatisfied clients.

Example: In the security sector, failure to integrate shift data accurately can lead to overtime disputes. If service location information is entered incorrectly, a guard could also be late to their shift due to a confusing venue layout. Ensuring that your agency has a robust system for tracking shift details and timesheets, and integrating this data into payroll and invoicing is essential.

5. Lack of Industry Focus:

Some staffing agencies make the critical mistake of trying to be generalists, attempting to cater to a broad spectrum of industries. They believe that by servicing any type of client, they will have more success. However, success in the staffing industry often hinges on specialisation and a deep understanding of the unique demands of clients in specific sectors.

For instance, if you’re targeting the healthcare, community care and NDIS, education, or hospitality industries, it’s crucial to offer services that are tailored to the specific needs of each sector. Clients in these industries are more likely to trust agencies that demonstrate industry expertise and a proven track record.

How Entire OnHire Can Help:

Entire OnHire provides a specialised platform and features for each of our core industries, making it easier for agencies to cater to the unique requirements of these sectors. By leveraging the tools provided by Entire OnHire, your agency can provide more targeted and effective staffing solutions, ultimately increasing your chances of success in the Australian staffing market. Due to the deep and powerful nature of Entire OnHire, we typically recommend that startups first build up a consistent roster of workers, and a reliable influx of shift requests prior to implementing our system. However, we have had some clients jump into the system at the very start of their business journey and accomplish incredible success levels in their very first year!

Conclusion:

Entering the staffing industry in Australia can be a rewarding endeavour, but it’s not without its challenges. To avoid the common pitfalls that lead to failure, new agencies must:

• Realistically assess the workload involved in client acquisition, staff recruitment, and data management and be willing to roll their sleeves up.
• Set achievable revenue expectations and be patient with their success journey.
• Invest in specialized agency software like Entire OnHire for industry-specific solutions.
• Prioritize accurate shift data integration to prevent billing and payroll issues.
• Cultivate industry expertise in a niche market to navigate sector-specific challenges effectively.

By understanding and addressing these key factors, aspiring staffing agencies can increase their chances of success in the competitive Australian market and ensure that they are entering the industry with a clear understanding of the dedication required for sustainable growth. We don’t believe the market to be oversaturated yet. There will also be a place for recruitment businesses, in permanent placement as well as on-hire casual work. The future of the industry belongs to those willing to put in the work and do it for the right reasons.

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