Choose your model · Lesson 1 of 18 · 5 min
Temporary and permanent placement share a name and almost nothing else. This one decision sets your capital requirement, your cash flow, the shape of your income and how you spend your days — so it is worth making deliberately rather than drifting into.
When someone says they are starting a staffing agency, they could mean either of two businesses that happen to sell to the same buyers.
Permanent placement introduces a candidate, the client hires them directly, and you invoice a fee — typically a percentage of first-year salary. The client employs the person. You never touch payroll.
Contract or temporary placement puts the worker on your payroll and hires them out. You bill the client for every hour worked, pay the worker less than you bill, and keep the difference for as long as the assignment runs.
| Permanent | Contract / temp | |
|---|---|---|
| How you earn | A fee when the hire starts, usually a percentage of first-year salary | A margin on every hour worked, for as long as the assignment runs |
| Payroll | None — the client employs them | Yours. You are the employer of record and pay weekly |
| Capital needed | Low. Setup, insurance and your own costs until the first fee lands | High and growing. You fund payroll continuously until clients pay |
| Revenue shape | Lumpy. Every month starts at zero | Recurring. A filled desk pays whether or not you place anyone new |
| Risk if a placement ends | Guarantee period — you replace or refund | Revenue stops, but you stop paying too |
| What fills your day | Search, shortlisting, closing offers | Compliance, timesheets, payroll, redeployment |
| Compounding | None. The fee is earned once | Strong. Long assignments stack into a base |
Everything else on that table is a preference. This row is a constraint. Place contractors and you pay them weekly while waiting on client terms, which means carrying payroll continuously — and the requirement grows every time you place someone else.
That is why agencies with good margins and a full desk still fail. Not for want of clients; for want of the cash to bridge the gap between paying and being paid. The cash flow lesson puts a number on it.
Check yourself
You have $8,000 of savings and no outside funding. Which model can you actually start on?
Your contract desk grows from two contractors to eight. What happens to the cash you need?
This is a common path and it is common for a reason. Permanent placement lets you start on a small amount of capital, prove you can win clients, and build the relationships that later carry contract work. Once there is cash in the business, contract margin gives you the base that permanent income never will.
The opposite order — starting on contract without funding arranged — is where new agencies get into trouble, because the problem does not appear until it is working.
Contract-to-hire sits between the two. The worker starts on your payroll, and the client converts them to their own employee later, usually after an agreed period or on payment of a conversion fee. You carry payroll for the contract portion and then earn something closer to a placement fee at conversion.
It is a genuinely useful middle ground, with one condition: the conversion terms go in the contract at the start. Every dispute in this model is about when conversion became free.
This lesson is the fork. The next two are the roads, and you only need the one you picked — though reading both is worth twelve minutes if you think you might add the other model later.
Key takeaways
If capital is the constraint, permanent is the honest answer — there is no payroll to finance, so you can start with setup costs and your own runway. If predictability matters more and you can fund the gap, contract staffing builds a revenue base that permanent never will. Many owners start on permanent placement precisely to generate the cash that lets them add contract later.
Because they pay the workers. A contractor works this week and expects to be paid this week; the client pays on their terms, commonly thirty to sixty days later. You cover the gap out of your own funds, continuously, and the amount grows with every contractor you add. It is not a one-off startup cost — it is a permanent working capital requirement that scales with success.
Most established agencies do, and running both smooths the weaknesses of each: permanent fees provide cash injections, contract margin provides a floor. The reason to start with one is focus rather than principle — the contracts, insurance, systems and daily rhythm differ enough that doing both from day one usually means doing neither well.
The worker starts on your payroll as a contractor and the client converts them to their own employee later, usually after an agreed period or on payment of a conversion fee. It sits between the two models: you carry payroll for the contract portion, then earn something closer to a placement fee at conversion. Get the conversion terms in writing at the start, because that is where the disputes happen.
Contract work is usually an easier first conversation. It comes out of a different budget, carries less commitment, and a manager who needs someone next week has more urgency than one filling a permanent role over three months. That urgency is also why contract clients often come back — and why a contract-first agency tends to build a repeat base faster.
Finished this lesson?
Next: Running a permanent placement desk
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