Is the recruiting industry declining?

The US recruiting/staffing industry is big business; 2010 total revenue was approximately $100 billion (B)¹ and third-party recruiting firms (i.e. executive search/headhunting/search and placement firms) generated $10B in total revenue.  Although total industry revenue has improved post-recession, third-party recruiting revenue has not.  In fact, on the recruiting side revenue has dropped quite a bit from the high of $17.5B² in 2007.  For example in 2010, as a percentage of total revenue third-party recruiting reached a nine year low at 10% whereas staffing revenue reached a new high at 90% (click on the chart below for additional details).

This revenue shift is a result of seismic changes in the recruiting industry due to social networking sites, particularly LinkedIn.  In fact HR has quickly adopted social networking tools like LinkedIn to find talent; in 2011 the rate of LinkedIn social recruiting among HR professionals stood at 87%³ and personally I do not know one corporate HR recruiter that does not use LinkedIn.  .

So with a more educated/trained HR workforce, the cost of third-party recruiting compared with alternatives such as social media and internal employee referral programs is causing HR to re-evaluate their needs; I suggest three things that will help any third-party recruiter ride this wave of change and book more business:

1. Dig deep, get trained and stay up-to-date on the latest and greatest in recruiting.  From experience, any reputable certification course or recruiting industry trainer will put you on the right track and give you the knowledge and skills to stay ahead of the curve.

2. Carve out a sustainable and defensible niche.  For business owners, this means taking a hard look at where demand is now and where it will be in the future and positioning your company to be a first mover in an emerging talent market. 

3. Be confident about the service you provide and write out your value proposition.  Tell clients how your service as an executive search consultant is different from social media platforms and mention specific points that showcase your value-add. 

With that said, there is one powerful trend that bodes well for third-party recruiters; HR departments are hiring more generalist and administrative support then specialist.  According to a recent study Human Resource departments expect HR generalist to account for 36% of new hires and HR administrative support for 27% of total new hires.⁴ So although HR might have the skills and knowledge to search and find talent they will not have enough time to devote solely to recruiting efforts as they will need to split time between other important HR functions leaving the door wide open for third-party recruiters. 

Returning back to the question posed in the title of this article, is third-party agency recruiting on the decline?  Unlikely, although social networking sites like LinkedIn are putting tremendous pressure on third-party recruiters they can never replace a recruiter with deep industry knowledge, contacts and a complete recruiting tool kit.  So as the US economy gains more ground and hiring managers put pressure on HR to fill requisitions the demand for third-party recruiters will certainly increase.  

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Thank you.

recruiterMikeC

Update:
According to a recently released report, 2011 Third-Party Recruiting revenue was $11.5B which represents an 18.5% year over year increase.  It looks like the recruiting industry is starting to turn the corner!