How can recruitment agencies overcome challenges?  

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Many recruitment agencies are facing huge challenges, with major firms like Hays, PageGroup, and Robert Walters reporting significant drops in net fee income.

According to government statistics, 181 recruitment businesses entered liquidation in the six months to August 2025, which is an 18% increase on the same period last year.

Why are recruitment firms struggling?

Higher rates of tax and an increase in employment costs has had a huge impact on the appetite for companies to recruit.

Many businesses have been hit by an increase in Employers National Insurance Contributions (NICs) to 15%, with the threshold at which this is applied being reduced to £5,000, as well as the rise in the National Minimum Wage and National Living Wage.

Talent shortages in many industries is also an added challenge as agencies typically get paid once a position is successfully filled.

Financial pressures and market shifts

Added to the challenges above, the cost of maintaining sufficient levels of working capital can be a problem for recruitment agencies when clients often take 30–90+ days to pay invoices, especially in permanent placements where the full fee is billed upfront.

Subscription fees for applicant tracking systems (ATS), customer relationship management (CRM) platforms, job boards, and LinkedIn Recruiter are expensive, and consistent marketing and advertising spending is required to attract both clients and candidates.

Increased competition, especially from low-cost or online platforms, pushes fees down. Also relying heavily on a few large clients poses a risk if contracts end or hiring slows, particularly of concern with a growing trend of larger clients investing in internal talent acquisition functions to reduce agency dependency and costs.

What can recruitment firms do to become successful?

• Know where you are and where you are heading

This sounds obvious but it’s surprising how many recruitment firms do not have up-to-date, accurate accounting information. This is a vital building block on which you can add forecasting information. This will help to align costs to predicted income. In these times of economic uncertainty, forecasts will change, and recruitment companies must be nimble in making changes to maintain profitability. It is important to have as flexible cost structures as possible. For example, where possible use commission-only consultants, or freelancers to avoid high fixed salary costs.

• Don’t be afraid to use new technology

The use of applicant tracking systems (ATS), AI-driven candidate matching, and automation in candidate communication (e.g. chatbots) will reduce overheads and improve recruiter productivity. An example of this is Capita. They are rolling out an AI-driven hiring platform to cut more than 200 recruitment-related manual tasks.

• Look at your income streams

Recruitment agencies with a balance between permanent placements and contract staffing tend to be more resilient, as contracting provides a more predictable recurring income. It may be worth considering focusing on more sustainable industry sectors such as financial services, pharmaceuticals or technology companies where hiring remains stable or grows even in times of economic downturns.

• Stay people-focused

Successful recruitment firms act as partners with their clients. They offer workforce planning, salary benchmarking, and diversity, equity and inclusion consulting. They also seek to deepen the relationship by placing recruiters onsite or virtually within the client’s business, making them harder to replace. Another service worth considering is post-placement support. This reduces rebate risk and improves client satisfaction, a win-win situation.

It is equally important that you are proactive in looking after your candidates. Keep a track of high-level candidates and maintain a relationship with them. Future opportunities may arise, and they may value that you continue to look after their interests.

• Branding

It is vital to raise your recruitment firm’s profile to make it the ‘go to’ place for clients and candidates.

In this digital world, strong content marketing such as LinkedIn thought leadership, salary guides, etc. builds authority and leads. Always be thinking of what experience you can offer that will set you apart from your competitors.

Improve resilience

While there a huge pressures facing the sector, there are ways that recruitment agencies can adapt to avoid insolvency and the sooner this is addressed, the greater the chance of survival. By adopting clear strategies, diversifying income streams, building strong client and candidate and embracing technology recruitment firms can continue to be successful.