The rules have changed but recruitment hasn’t: here’s how we fix it

The traditional recruitment model was built for a different era.

It was built for a time when margins were healthy, talent was scarce, and clients accepted contingency fees without question. The formula was simple: hire consultants, give them phones, access, and commission plans, and let revenue scale by adding more desks and more offices.

That world is gone. Margins are tightening as clients demand more for less. Technology has flattened candidate access, removing the information asymmetry that once justified premium fees. Top consultants leave to start competitors, taking relationships and knowledge with them. And businesses find themselves stuck: unable to invest in improvement because their outdated model consumes everything just to keep the lights on.

Fees won’t bounce back

For twenty years, the industry has been losing pricing power, yet many firms behave as though margin recovery is just around the corner. They respond to fee pressure by cutting costs, lowering service standards, and pushing consultants harder. All they’re succeeding in is creating a race to the bottom that accelerates decline.

This margin erosion isn’t cyclical; it’s structural. Clients now view recruitment services differently. Candidates access opportunities independently. Competing on contingency alone forces businesses into price-led competition while stripping the resources like technology, training or service innovation that are needed to differentiate.

The only businesses escaping this trap are those willing to rebuild their models entirely rather than squeezing more effort out of a failing structure.

John Kotter’s Our Iceberg Is Melting was written almost 20 years ago, and while it wasn’t written about recruitment, it describes the current state of our sector perfectly. Agencies either believe the market will rebound like it always has, or recognise the need to shift to new models, or freeze in the headlights, paralysed by the risk of leaving behind what once worked.

Meanwhile, innovators are racing ahead. Mercor, founded in 2023 with around 75 staff and powered heavily by AI, is now valued at $10 billion with a network of more than 30,000 contractors. It shows what happens when technology becomes the business model, not something bolted on.

For most recruitment firms, the challenge is deciding how to adopt AI and automation in ways that increase per-capita output without reducing service quality. Simply dropping new tech into an outdated structure only accelerates failure. Tomorrow’s recruitment business requires rethinking structure, process, leadership, and the roles that genuinely create value.

More consultants ≠ a bigger business

Traditional recruitment doesn’t scale. Revenue only grows by adding consultants, creating a collection of individual performers rather than a scalable enterprise.

As headcount rises, problems compound:

• Quality consistency becomes impossible when delivery depends on individual consultant talent.

• Knowledge gets stuck in people’s heads, not systems.

• Client relationships remain personal rather than institutional, creating huge key-person risk. 

• And perhaps most telling: a 100-consultant firm often operates just like a 10-consultant firm, only with more overhead.

The model never generates a return on scale. There’s no compounding advantage from accumulated experience, capability, or data. It’s just more desks and more salaries. 

The fragility persists. 

The traditional model creates its own competition

High-performing consultants are highly portable. They can take their skills and relationships to any competitor, or use them to start their own firm. Traditional compensation structures reward personal billing more than organisational impact, which means the more successful a consultant becomes, the more likely they are to leave.

Success becomes vulnerability.

Businesses invest in development only to see that investment walk out the door. The institutional knowledge that should create advantage disappears with people. This cycle drains value and ensures that businesses never truly accumulate capability.

The companies solving this build models where consultant success strengthens the business, not weakens it. Scale creates genuine value for the individual, and leaving becomes less attractive than staying. 

In our recent work with a mid-tier recruitment business, we stripped back their traditional model entirely. We examined shifting client preferences, candidate expectations, leadership capability, and the gaps emerging between modern buying behaviour and outdated delivery methods. We redesigned the process into task phases, identified where automation and AI could replace admin-heavy work, and redirected people with strong relationship skills into the moments where experience and trust matter most.

As a result, recruiters have been replaced in some areas with digital professionals, process automation specialists, data experts, and customer success teams, creating a model where fewer recruiters generate more revenue at a higher margin.

What the new recruitment model looks like

The firms transforming successfully are no longer dependent on contingency alone. They’re building hybrid models with retained components, subscription revenues, advisory services, productised offerings and tech-enabled efficiency.

Speaking with M&A, Corporate Finance, and Private Equity professionals, the direction is clear: investors want highly efficient, tech-enabled recruitment businesses. Historically, valuation multiples were tied to annuity revenue. Today, AI-driven efficiency is becoming just as influential.

Mercor is the extreme example - an AI-native labour platform valued at $10 billion almost within a year of founding. Many others are sure to follow.

The businesses adapting well are using AI to enhance consultant capability, not replace it. They’re developing talent intelligence products, market-mapping services, and advisory offerings that deepen client relationships and diversify revenue.

These models scale without requiring proportional increases in headcount. 

That is the future.

Fund change or fund decline

Rebuilding a recruitment business model requires investment, something traditional models struggle to support. Technology, service design, capability building and training all require capital that contingency economics often can’t provide.

This creates a Catch-22: the business needs to invest to escape the broken model but can't generate the returns to fund that investment while trapped in it. 

Sometimes painful action is required. Leadership layers focused on volume supervision rather than process improvement can be removed to create financial headroom to invest in future structures and technologies, often with very little risk.

Recruitment is both B2B and B2C, yet it has been slower than other industries to adopt proven operating models. Agile-enabled recruitment teams are showing what’s possible: cross-functional sprint cycles, incremental pricing models, and significant gains in productivity. Agencies adopting these approaches are reporting around 20% improvements in per-capita productivity, lower external job board costs, and a noticeable surge in employee satisfaction.

The businesses navigating this transition successfully either secure external capital or demonstrate extraordinary internal discipline to fund both today’s operations and tomorrow’s model simultaneously.

Incremental change isn’t enough

Fixing a broken recruitment model requires more than tweaks. It demands a rethink of how value is created, delivered, and captured. Pricing models, delivery structures, consultant roles, technology use, and client relationships must all be reconsidered.

The businesses making this shift create companies investors want to buy, consultants want to stay in, and clients want to partner with. They’re building competitive advantages that compound by replacing fragility with true durability.