The Recruitment Industry Explained: How Different Agency Models Actually Make Money

If you’ve ever uploaded your resume to a “staffing agency” or been contacted by a “talent recruiter,” you might think these companies exist to help people find jobs. And while they do help connect people with employment, that’s not quite how their business model works.

The recruitment industry is full of terms that sound similar but represent different business models: recruitment agencies, staffing agencies, temp agencies, executive search firms, talent agencies, and job boards. They all seem to do the same thing—connect workers with employers—but they operate very differently and make money in distinct ways.

Here’s what’s actually happening behind the scenes.

The Core Truth: Employers Pay, Not Job Seekers

First, the fundamental reality of modern recruitment: candidates almost never pay. The employer pays 100% of the fees in nearly every model.

This is important because it reveals who the actual customer is. If employers are paying, then employers are the customers. Job seekers are the product—the inventory being matched to employer needs.

This isn’t sinister; it’s just business. But it creates confusion when people think “employment agency” means “someone working to get ME employed,” when it actually means “a business that helps employers fill positions.”

Now let’s break down the different types of agencies and how each one makes money.

1. Recruitment Agencies (Permanent Placement)

What they do: Find candidates for full-time, permanent positions at companies.

How they get paid: Contingency fees or retained search fees.

Contingency Model

Employer pays nothing unless they hire someone the agency submits
Fee is typically 15-25% of the candidate’s first-year salary
Example: $100,000 salary = $20,000 fee to the agency
Multiple agencies can compete for the same role
Risk: The agency could work for weeks and earn $0 if the employer hires from another source

Retained Search Model

Used for executive and senior-level positions
Employer pays in stages (typically 1/3 upfront, 1/3 at 30 days, 1/3 at placement)
Fee is typically 25-33% of projected compensation
Usually exclusive (only one agency working on the role)
Risk: Employer pays whether a placement happens or not

Examples: Robert Half (permanent division), Heidrick & Struggles (executive search), smaller boutique recruiting firms

Why the confusion exists: These agencies market heavily to job seekers (“Submit your resume! We’ll help you find your dream job!”) because they need a large database of candidates to match with employer needs. But the relationship is transactional—if you don’t match a current job opening, you likely won’t hear from them again.

2. Staffing Agencies / Temp Agencies

What they do: Provide temporary, contract, or project-based workers to companies.

How they get paid: Hourly markup or contract billing.

Temporary Staffing Model

Worker is paid by the agency (e.g., $25/hour)
Agency bills the employer a higher rate (e.g., $35/hour)
The $10/hour markup covers payroll taxes, insurance, overhead, and profit
Typical markup: 25-75% depending on skill level and industry
Payment is ongoing—weekly or monthly invoices

Contract Staffing Model

Similar to temp, but for longer-term projects (months to years)
Often higher-skilled roles (IT contractors, specialized engineers)
Markup can be 40-100% depending on expertise required

Temp-to-Hire Model

Candidate works as a temp initially
If employer wants to hire permanently, they pay a conversion fee (typically 10-20% of salary, sometimes prorated based on how long the person was a temp)

Examples: Randstad, Adecco, Manpower, Kelly Services (Canada)

Why the confusion exists: Temp agencies often have storefronts and accessible offices, making them look like “employment help centers.” People walk in looking for work, but the agency only helps if they have an employer client who needs that type of worker right now.

3. Executive Search Firms / Headhunters

What they do: Find senior executives and highly specialized professionals, often poaching talent from competitors.

How they get paid: Retained fees (almost always).

Fee: 25-33% of total compensation (base salary + bonuses)
Paid in stages regardless of outcome
Highly consultative—they’re hired to solve a strategic talent problem
Often work on a retainer basis for ongoing relationships

Examples: Korn Ferry, Spencer Stuart, Egon Zehnder

Why the confusion exists: These firms do contact passive candidates (people not looking for jobs), which can feel like “someone is helping me advance my career.” But they’re actually serving the employer who’s paying six figures for the search.

4. Recruitment Process Outsourcing (RPO) / Managed Service Programs (MSP)

What they do: Companies outsource their entire recruiting function (RPO) or vendor management (MSP) to an agency.

How they get paid:

Fixed monthly retainer to handle all hiring
Or cost-per-hire model with negotiated rates
Or percentage of hires across high-volume needs

This is essentially recruiting-as-a-service for large enterprises.

Examples: Tapfin, PeopleScout, Allegis Global Solutions

Why the confusion exists: Most job seekers never interact with these—they’re pure B2B enterprise services.

5. Job Boards (Not Really Agencies)

What they do: Platforms where employers post jobs and candidates apply.

How they get paid: Completely different model—advertising revenue.

Employers pay to post jobs (Indeed, ZipRecruiter)
Or employers pay for access to resume databases (LinkedIn Recruiter, Monster)
Or freemium model (free basic posting, paid for premium visibility)
No placement fees—they’re just advertising platforms

Examples: Indeed, LinkedIn, Monster, ZipRecruiter

Why the confusion exists: Job seekers see “jobs” and think it’s a service helping them. Really, it’s a billboard where employers buy ad space. The job board doesn’t care if you get hired—they already got paid when the employer posted.

6. Talent Agencies (Creative/Entertainment)

What they do: Represent actors, models, musicians, influencers, athletes.

How they get paid: Commission from the talent (not the employer).

Typically 10-20% of what the talent earns
This is the opposite model from recruitment agencies
Regulated differently than employment agencies

Examples: CAA, WME, IMG Models

Why the confusion exists: The term “talent agency” gets used in tech recruiting sometimes, but entertainment talent agencies operate fundamentally differently—they’re actually working for the talent, not the employer.

The Four Payment Models Summarized

Across all these agency types, there are really four core ways they make money:

Contingency — No hire = no pay. Fee only when placement happens (15-25% of salary)
Retained — Paid upfront in stages. Get money whether placement happens or not (25-33% of salary)
Hourly Markup — Ongoing billing while worker is on assignment. Charge employer $35/hr while paying worker $25/hr
Flat Fee — Fixed price per hire regardless of salary. Common for high-volume, standardized roles

Some agencies use multiple models depending on the role and client relationship.

What Job Seekers Get Wrong (And Why It Matters)

The most common misconception: “I signed up with a staffing agency, so now I have someone helping me find a job.”

Reality: You added your resume to their inventory. They’ll contact you if you match a current employer need. Otherwise, you’re in a database with thousands of others.

This isn’t because agencies are evil—it’s because their business model doesn’t support providing free personalized job coaching to every person who submits a resume. They’re paid by employers to fill specific roles, not to be career counselors.

What job seekers think they’re getting:

A personal recruiter searching for jobs for them
Someone advocating for their career advancement
Ongoing support and follow-up

What they’re actually getting:

Free access to jobs they might not find on their own
Potential faster placement if they match a need
Help with interview prep and resume screening (sometimes)
But only if they fit a current client requirement

What Employers Get Wrong (Less Often)

Employers generally understand these are paid services, but sometimes have unrealistic expectations:

Thinking contingency recruiters will spend weeks searching when they’re not guaranteed payment
Expecting the same level of service from a temp agency ($10/hr markup) as an executive search firm ($100K retainer)
Not understanding why their job posting isn’t getting responses (the agency is competing with hundreds of others)

The Economics Make Sense Once You See It

Here’s why the employer-pays model dominates:

Employers have budgets for hiring—it’s a business expense
Employers have urgent needs—an unfilled role costs them money every day
Job seekers don’t want to pay—especially when they’re unemployed
Legal issues—many jurisdictions restrict charging job seekers fees

The result: an industry built around serving employers, with job seekers as the necessary inventory to make the matches happen.

So What Should You Expect?

If you’re a job seeker:

Understand that agencies will only contact you if you match an active job
Don’t expect personalized career coaching—that’s not the service being offered
Do submit your resume to relevant agencies—it’s free and might lead to opportunities
Don’t sit around waiting—agencies are just one tool in your job search

If you’re an employer:

Understand what you’re paying for with each model
Contingency = lower upfront cost but less dedicated effort
Retained = higher cost but exclusive focus
Temp/contract = ongoing markup but flexible workforce
Choose the model that matches your hiring urgency and budget

The Bottom Line

The recruitment industry isn’t designed to “help people find jobs” as a charity or public service. It’s designed to help employers fill positions efficiently, and candidates benefit as a byproduct when they happen to match current needs.

Once you understand the business models—who pays, how much, and when—the industry makes a lot more sense. There’s no conspiracy or deception; it’s just a B2B service industry where the product happens to be people.

And for job seekers, the service is free, even if it’s not the personalized job-finding helper you might have imagined when you clicked “submit resume.”