The big question for many agency owners is: should a recruitment agency focus on contract or permanent recruitment? The truth is, there isn’t a one-size-fits-all answer. Decisions are driven by strategy and your aspirations to scale - your business plan, your market, the sectors you operate in, and what your clients actually need all play a part.
There’s a lot to consider. The models differ in how they handle financials (margins, cash flow, and risk) as well as operational structure, systems, and compliance. So, if you’re asking what is the best recruitment business model: contract, perm, or hybrid? It really comes down to aligning your approach with your goals and the market reality.
Below, we’ve put together guidance for you, looking at the current economic drivers and the key differences between contract recruitment and perm recruitment business models. This will help you understand the situations shaping agency strategies today and give you a clearer picture of when contract, perm, or hybrid models make the most sense.
Short on time?
Skip to our Comparison Table or view more FAQs about Contract Recruitment
Firstly, let's look at the economy
Uncertain markets continue to shape client behaviour, and it’s clear that permanent hiring isn’t what it used to be. Reports from KPMG & REC show that while permanent placements have been declining, the rate of decline is easing. Permanent recruitment will never disappear, but it naturally ebbs and flows with the economy. For agencies, this means adapting to shifting client priorities and understanding the forces driving hiring decisions.
Is contract recruitment more resilient during economic downturns?
Contract recruitment has historically shown more stability and resilience when markets are volatile. The same KPMG & REC reports illustrate that contract placements fluctuate far less than permanent ones, providing agencies with a steadier stream of opportunities during uncertain times.
Companies tend to be cautious about committing to permanent headcount and may explore projects outside their usual core skillset. In these scenarios, hiring specialist contractors allows businesses to deliver immediate projects while building permanent roles more strategically as confidence returns.
The sustained period of uncertainty has also changed client expectations. Agencies are now valued not just for filling roles but for offering cost-effectiveness, speed, added value, and flexibility. For more insight on evolving client needs, see What Clients Want in 2026.
Is demand for contract recruitment growing compared to permanent hiring?
While permanent hiring remains a fixture, current trends clearly favour contract recruitment:
- Globalisation – Talent is no longer local. Contracting provides the flexibility to access top talent across the EU and worldwide, allowing agencies to scale client teams up or down quickly.
- Rise of fractional and project-based work – Agencies are seeing more contract assignments, interim engagements, and project-specific contracts. Clients are shifting toward paying for results and defined deliverables rather than committing to permanent headcount.
- Flexible hiring structures (e.g. temp-to-perm) – With the upcoming Employment Rights Bill in April 2026, and more rights for workers after 6 months' employment, companies may test candidates on contract before offering permanent positions.
These factors point to growing demand for contract recruitment, positioning agencies that can deliver agile solutions to thrive in today’s market.
Do clients want hybrid recruitment agencies?
Hybrid recruitment (offering both permanent and contract service) can be highly valuable, but only if your sector and clients require it. Contract work is most prevalent in project-focused sectors, such as technology, where flexibility and rapid delivery are crucial.
For example, Recruiter’s Hot 100 list highlights technology as the most prominent sector, with 34 specialised tech recruiters featured. Many of these agencies have a 64%/36% temp/perm split, reflecting clients continued caution around permanent hires while embracing hybrid staffing models.
Clients increasingly rely on agencies to support dynamic workforce planning, and being able to provide a mix of contract and permanent solutions is often the key to staying relevant and delivering tangible value.
Now, let's look at the business models
Is contract recruitment more profitable than permanent recruitment?
At first glance, perm recruitment often delivers higher fees per placement. But profitability isn’t just about revenue - it’s about the full picture: recurring revenue, cash flow, margins, operational costs, client behaviour, and systems. A sustainable agency strategy looks at all these factors together, not just one-off wins.
Which recruitment model provides more predictable revenue for agencies?
Contract recruitment generally provides more stable, predictable revenue. Agencies earn a margin on hourly or daily rates, and while payroll, compliance, and benefits add overheads, these costs are predictable and scale with the size of your desk. Specialist partners are also available, like 3R, to support areas such as funding, back-office systems, and umbrella management, making it easier to manage cash flow and grow efficiently.
Permanent recruitment, on the other hand, has lower ongoing costs, but fees are one-off so revenue is lumpy and dependent on successful placements. Income can fluctuate sharply if hiring slows, making financial planning less predictable.
Bottom line: Contract recruitment = predictable and scalable revenue, while permanent recruitment = higher-margin but less consistent. Many agencies use a hybrid model, combining the steady cash flow of contract placements with the upside of permanent fees, which helps forecast cash flow, manage staffing, and plan growth with confidence.
Is contract recruitment easier to scale than permanent recruitment?
Yes. Contract recruitment scales faster and with less risk. You can quickly add or reduce contractor placements, replace or extend contracts, and generate multiple revenue streams from the same candidate.
With predictable cash flow and flexible systems, it’s easier to expand desks, enter new sectors, or respond to client demand. Permanent recruitment is slower, tied to one-off fees, and more sensitive to market cycles.
Thinking about scaling your contract or hybrid recruitment desk?
Connect with 3R to discover the best systems, processes, funding, and support to deliver your contract & perm business efficiently.
