My partner and I recently started a technical staffing agency. Is the staffing agency industry oversaturated or is it still a lucrative business?

Yes to both.

Because it is a lucrative business, there is a lot of competition. There are very few barriers to entry in the staffing/recruiting space (cash flow being one if you are focused on contract placements as you'll need free cash to support payroll).

You need to be prepared to stick it out for the long term. Time is your friend here, because most recruiters and sales reps (those building and cultivating relationships with clients) come and go. The relationships you can scrape together in your first year will serve you well if you are still in business in years 2, 3 and beyond - because you'll still be around, where many of your competitors will have moved on (not necessarily the agencies they worked for, but as owners of the relationship, they take that asset with them when they leave).

Good to hear you are focused on technical staffing - stay in your lane, figure out what the core in-demand skills are in your market (likely software engineering like everywhere else), and focus on direct hire placement initially to get some early traction and cash in the bank.

Then, when the time is right, hire a business development/sales professional and get them out in the field meeting with hiring managers from growing companies in your market. Track their activity and incentivize them to generate contract business, so you can start building up a book of business.

Good luck!

Scott gave a terrific answer. I would add that positioning is key, know who are you and your value prop and stay focused. It's easy to take on a search for anything, but the more you do that, the harder it will be to build a track record. Even in tech, some of the best engineering staffing firms don't do everything within tech, so they'll turn down a help desk req or peoplesoft consultant search to stay focused on software engineers, etc...

There is also room to run in the contract staffing world, the residual incomes are usually much better in the long run than perm search, although barrier to entry is a bit higher. You can usually pick up some payroll deal business after establishing yourself.

Good luck!

There is a lot of competition in this space. You have the large staffing companies and the boutique firms. You also have a lot of companies with an internal recruiting function. I have had my own recruiting agency for almost 10 years and am very happy with my business so far. I chose a niche to focus on and only work with startups teaching them how to scale their technical teams. Once you differentiate yourself as a professional agency and offer great service and results, the referrals and repeat business will follow. It also helps to be actively involved in the recruiting community via social media and live events. Fellow recruiters have been instrumental in expanding my business. Overhead for a technical staffing agency can be minimal at first. I can answer any questions you may have on a call.