By Katie Babich

Head of Operations, Sonovate


In today’s volatile economy, maintaining healthy margins has become a challenge for many recruitment companies. Increasing interest rates, concerns over reduced labour market activity, and a potential decline in new business volumes all require proactive measures to ensure profitability. This article will explore key strategies and talking points to help you navigate these economic conditions and protect your margins effectively.

Protecting Profitability:

Amid the challenging economic climate affecting businesses in the UK and abroad, end clients are increasingly pressuring recruitment agencies to lower their pricing in a bid to save costs. While larger corporate players might absorb these price reductions, smaller agencies may feel tempted to do the same to secure the business. However, engaging in a price war can be detrimental to your profitability.

Operating on razor-thin margins makes it difficult for your business to sustain operations, invest in growth, or handle unexpected challenges. Moreover, drastically reducing fees may force compromises in service quality, leading to subpar candidate selections and longer hiring cycles (if you end up making placements at all!), ultimately leaving clients dissatisfied and damaging your reputation.

It is essential to avoid establishing a reputation for offering low fees, as this makes it challenging to upsell premium services or increase prices in the future. Clients are more likely to resist such attempts and might even consider taking their business elsewhere.

Renegotiating Client Contracts:

A vital step in safeguarding profitability involves recognizing the rising costs across various areas of your business and transparently passing them through to your clients where feasible. The current economic conditions have resulted in spiralling inflation, the highest interest rates in decades, and a cost-of-living crisis that has pushed employee wages up. As a proactive response to these macro-economic factors, do not hesitate to engage in contract renegotiations.

During these discussions, it’s essential to highlight how these rising costs, if not addressed, will impact the delivery of quality service. Emphasize that you are committed to finding a fair and commercially viable solution that works for all parties involved. Offering flexibility, such as extended payment terms, tiered pricing models, or additional services that create added value (more on this later), can help accommodate varying client budget constraints while ensuring your agency’s profitability remains intact. A win-win scenario.

This is also an opportunity to strengthen your client relationships as it allows you to emphasize your commitment to providing continued value and exemplary service in the face of economic challenges.

Value-Based Pricing:

Maintaining a healthy margin is crucial for the long-term viability of your business. Adopting a value-based pricing strategy ensures that you charge for the true worth of your services, enabling sustainable profitability even in challenging times. Rather than engaging in a price competition, focus on differentiating yourself based on the unique value you bring to the table. Highlight your expertise, industry knowledge, candidate quality, and exceptional customer service to stand out in the market.

Competing solely on the basis of lower fees can be a dangerous practice that severely erodes margins and creates additional challenges for your business. It often leads to a compromise in the quality of service provided, ultimately affecting client satisfaction and damaging your reputation.

When you lower your fees, the level of service could decline proportionally. A “bronze package” might mean utilizing the most junior and inexperienced consultants, delivering fewer and potentially lower calibre candidates at shortlist, and reducing the volume of personalised touchpoints. This mismatch between expectations and the actual service delivered can strain client relationships and impact your business negatively. To counter this, it’s crucial to initiate collaborative discussions with clients and gain a deeper understanding of their specific challenges and objectives.

By aligning your services with your clients’ needs, you can position yourself as a strategic partner rather than a mere service provider. This shift allows you to demonstrate the unique benefits your agency offers, including better hires and long-term cost savings through exceptional service. Consequently, clients are more likely to recognize the value you provide and be willing to pay premium prices for the added benefits and personalized solutions you bring to the table. This approach not only safeguards your margins but also strengthens client relationships and contributes to the overall success of your business.

Cost Optimization:

Conduct a thorough cost analysis of your business to identify areas where costs can be cut without compromising service quality. This will involve renegotiating supplier contracts, streamlining processes, and adopting cost-effective technology solutions to increase efficiency and reduce operational costs. For example, utilise applicant tracking systems, AI-driven candidate screening, and automation tools to enhance processes.

In order to drive increased new business, consider offering special incentives or loyalty discounts for returning clients who choose to partner with you again. This can make the decision to work with you even more appealing, particularly if they are facing budget constraints in the tough economic climate.

Lastly, foster a culture of cost-consciousness and efficiency within your business. Encourage your team to actively contribute ideas for cost-saving measures and reward innovative solutions that improve both efficiency and service quality. Creating an environment that values prudent financial practices will empower your team to be more resourceful and drive sustainable cost optimization.

Diversification of Services:

If your agency has primarily focused on a single skillset, now is the time to consider diversifying your hiring capabilities to cater to a broader range of requirements allowing you to present cross-functional solutions to your clients. For example, if you have been solely recruiting in the IT sector, you could also offer tech-related roles in Marketing, Operations or Finance, leveraging your knowledge of technical skills to match candidates with the diverse business needs of your clients.

This could also include identifying and targeting niche markets or roles within your specialised sectors that are less impacted by economic downturns. Specializing in hard-to-fill positions can give you a competitive edge and the opportunity to charge higher margins. Various sectors today continue to suffer from a significant shortage of specialist talent. While this is well-documented in Healthcare and IT, other sectors, such as consulting, are also experiencing this issue.

Expanding your service offerings can be another avenue for diversification. Consider exploring opportunities such as executive search, talent management consulting or employee benchmarking. These additional services can enhance your agency’s reputation as a comprehensive talent solution provider, appealing to clients seeking end-to-end HR support and allowing you to create multiple revenue streams.

While diversifying your services may require an initial investment in upskilling your existing staff, view it as an investment in future success. A highly skilled and versatile team is better equipped to deliver exceptional results, leading to greater client satisfaction, an increased volume of new business, and ultimately higher margins.

Exploring New Horizons:

In the realm of opportunities, it’s wise not to confine yourself to a singular market. The world is an expansive canvas, brimming with potential, especially across continental Europe where Germany, The Netherlands and France are top players. In terms of single markets, the USA remains the world’s largest for staffing and recruitment, followed by Japan.

By setting your sights on these evolving markets, you open up avenues for international growth and continued diversification. The Netherlands, where English is spoken widely, can be an interesting country to move into for your first international venture. It is on a robust growth trajectory in the temporary employment arena, offering a compelling case for venturing beyond familiar boundaries.

While embarking on this journey requires a thorough understanding of regional nuances and demands, the potential rewards are substantial. Adapt your service offerings and strategies to align with the distinct needs of these markets, thereby presenting tailored solutions that resonate with both clients and candidates. This will result in your agency establishing an international presence, tapping into revenue streams driven by burgeoning demand.

Contract recruitment:

If contract recruitment lies beyond your current service scope, it’s worthy of exploration, presenting several compelling advantages:

Economic Resilience: Amidst the ebbs and flows of economic conditions, contract recruitment stands as a steadfast shield. This addition to your service offering fosters resilience by enabling your agency to navigate market downturns with greater confidence. Historical data spanning the last decade corroborates that contract recruitment possesses a propensity to rebound more swiftly than its permanent counterpart during economic slowdowns.

Consistent Workflow: By abandoning sole reliance on permanent placements, contract recruitment fortifies your agency with a consistent flow of assignments throughout the year. This steadying effect contributes to the stability and continuity of your business operations.

Elevated Value: By seamlessly integrating contract recruitment into your suite of services, it underscores your adaptability to cater to an expanded spectrum of client needs, thereby amplifying your overall value proposition.

Amplified Reach: Contract recruitment broadens the horizons of your agency’s appeal, attracting a fresh tide of business. This diversification opens doors to an untapped market segment, alluring clients who might have previously overlooked your agency’s potential.

The UK contract recruitment landscape has defied the grasp of economic pressures throughout 2023. Evidenced by KPMG and REC’s UK Report on Jobs published in July, the robustness of temporary recruitment has outshone its permanent counterpart. Neil Carberry, Chief Executive of REC, affirms that amidst the uncertainty, firms lean on temporary labour to sustain their momentum. In this perspective, the prowess of contract recruitment lies in its ability to provide stability and continuity when economic forecasts are unclear.

Enhance Customer Loyalty:

To fortify customer loyalty, prioritize nurturing strong relationships with existing clients by maintaining exceptional service and going the extra mile. Loyal customers are more likely to stick with you despite economic fluctuations and may be willing to pay premium rates for quality results.

Reconnecting with past clients who have previously paid for your quality service can also be a smart move. It’s a valuable strategy to reinforce customer loyalty and protect margins. These clients already know the value you provide and may be more inclined to engage your services again, especially if they had positive experiences in the past.

Remember that customer loyalty is not solely based on price but rather on the overall value and experience your agency provides. By consistently delivering exceptional service, maintaining open lines of communication, and focusing on your clients’ success, you can build long-lasting and mutually beneficial relationships that transcend economic challenges and protect your margins.


In a challenging economic climate, recruitment companies must take proactive steps to maintain their business margins. By implementing value-based pricing, diversifying services, nurturing customer loyalty, optimizing costs, and staying adaptable to market trends, you can better position yourself for long-term success. Remember, weathering tough times requires strategic planning, innovative thinking, and a commitment to delivering exceptional value to clients.