According to SIA, the staffing industry will remain stagnant until at least 2025. Without the rising tide, staffing firms must find ways to maintain margins. The key to sustaining profitability is power — a strategic advantage that competitors cannot easily replicate.

What Is Power?

Economist Hamilton Helmer outlines power in his framework, 7 Powers, which refers to conditions that enable businesses to achieve lasting profitability. Without at least one form of power, your staffing firm risks becoming indistinguishable from competitors, leading to price wars and shrinking profits.

Here are the key sources of power:

1. Scale economies. Scale economies occur when larger firms can operate more efficiently, reducing costs. For staffing firms, higher volumes translate into better pricing on insurance and back office. M&A is one strategy to increase scale, and so is bidding competitively on larger programs.

To grow sustainably with the same resources, your firm must invest in technology to automate tasks like candidate matching and back office. Talent platforms have executed this strategy well: Even with lower markups, automation enables them to earn more per employee than traditional firms.

2. Network economies. Network economies emerge when the value of a service increases as more people use it. Digital staffing platforms have thrived by pooling candidates and clients. As more users join, the network becomes increasingly valuable for both sides.

Staffing firms can build network economies by creating or buying digital platforms serving specific niches or locations. Don’t boil the ocean; focus your talent network and buyer demand. Once the network reaches critical mass, it becomes difficult for competitors to break in.

3. Counter-positioning. Counter-positioning involves offering a radically different business model that competitors cannot adopt without damaging profits. In staffing, direct sourcing platforms are an example. In direct sourcing, clients source talent themselves, lowering markups to around 30% versus traditional staffing markups of 50–60%.

Established staffing firms often cannot adopt this model without hurting their high-margin business, but agile staffing firms can capitalize by offering direct sourcing solutions to clients.

4. Switching costs. Switching costs are barriers that make it difficult for clients to change providers. If your firm manages a client’s entire contingent workforce through a VMS or acts as an MSP, the effort and cost of switching providers become prohibitive.

By becoming a prime vendor or MSP, staffing firms can deepen their relationships with clients, making it difficult for them to move to another provider without significant disruption. The largest staffing firms in the world understand this: They own the client relationship and rely on sub-vendors for delivery.

5. Branding

In a competitive industry, branding power is critical. A strong brand differentiates your company in the marketplace and builds client trust. Rather than serving all sectors, successful firms specialize in a niche — whether healthcare, IT or logistics — and become the go-to provider in that field.

Building a solid brand takes time and consistency through attending industry events, publishing thought leadership and aligning your firm’s narrative with client needs.

6. Cornered resource. A cornered resource refers to exclusive access to a valuable asset. For staffing firms, this might mean having a specialized talent pool that competitors cannot easily replicate. If your company specializes in quality control analysts in life sciences and has deep connections in that community, you’ve cornered a resource.

Such specialization gives your company an advantage since clients seeking those skills will struggle to find them elsewhere, making your firm indispensable.

7. Process power. Process power comes from superior operational processes that competitors cannot easily copy. Many staffing firms excel at recruitment and placement, but firms must consistently fine-tune their operations to maintain an edge.

Process power over the next decade will likely mean extensive use of AI. AI can streamline resume screening, match candidates to jobs faster, and offer real-time market insights. One AI tool is not enough. To gain an edge, staffing firms must use AI across their operations.

So, does your staffing firm have power? Maybe not today, but to build a lasting firm, you will need to find at least one source of power.