Key takeaways:
- Growth into new markets, verticals, or geographies can strengthen an agency, or it can quietly erode its competitive edge, depending on whether the expansion is backed by clear positioning and operational capacity.
- Recent data from the American Staffing Association (ASA) shows staffing employment recovering in 2025 even as sales revenue remained soft, a sign that volume without margin discipline is a real and present risk across the industry.
- The agencies gaining ground right now tend to be deepening their presence in specific markets rather than broadening into unfamiliar ones, a pattern that shows up in valuations, client retention, and recruiter performance alike.
There’s a version of growth that feels like momentum but functions more like drift. For staffing agencies, it often starts with a reasonable opportunity: a client asks for coverage in a new sector, a competitor exits a geography, or leadership sees white space in an adjacent vertical. The instinct to say yes is understandable. In a margin-compressed, competitive-by-nature industry, growth feels like the answer to most problems.
But at some point (and it’s rarely obvious when, adding markets stops adding value. Instead of reaching new revenue streams, the agency starts thinning out what made it good in the first place.
This isn’t an argument against growth. It’s a look at how some kinds of expansion ultimately work against the outcomes agencies are trying to create.
When volume and revenue stop moving together
According to the ASA’s quarterly Staffing Employment and Sales Survey, U.S. staffing companies employed an average of just under two million temporary and contract workers per week in Q3 2025. Although this is an increase from Q2, staffing sales were down 8.5% year-over-year. As ASA President Stephen Dwyer put it, “thin profit margins and fiercer competition are keeping revenue growth constrained.”
That gap (employment up, revenue down) is worth sitting with for a moment. It tells a story about an industry where placing more workers doesn’t automatically translate into earning more. For agencies that have expanded broadly, the situation can be even more pronounced: more markets to cover, more overhead to absorb, but not necessarily more margin to show for it.
The specialization signal
The agencies that attracted the most buyer interest in 2025, and the ones achieving the strongest margins, were generally not the ones with the most expansive footprints. Research from the staffing M&A space shows that specialized, profitable, tech-enabled staffing firms commanded the most attention, while private equity shifted away from broad “land grab” acquisitions toward add-ons that deepen sector or geographic specialization.
Valuations reflected this too. Professional staffing firms were trading at meaningfully higher multiples than light-industrial and commercial staffing firms, and fast-growing IT and healthcare firms commanded even more. Depth of expertise has a dollar value, and the market is pricing it in.
This doesn’t mean generalist agencies can’t thrive; they can and do. But it does suggest that having a clear answer to the question “what do we do better than anyone else?” is increasingly tied to financial performance, not just brand preference.
What “spreading thin” looks like
Market dilution rarely announces itself. It tends to show up gradually, in the texture of day-to-day operations. Recruiters are asked to source for roles they haven’t placed before. Account managers are supporting clients in industries where they lack credibility. The internal knowledge base (the hard-won understanding of what a good candidate looks like in a specific role, what a particular sector’s hiring managers actually need) gets stretched across too many contexts to stay sharp.
Survey data from HireQuest’s network of 400+ staffing offices found that 61% of recruiters anticipate steady market conditions in 2026, and the research pointed clearly toward a competitive advantage for agencies that deepen their presence in key markets rather than spreading resources across multiple geographies. In short, having the right candidates in the right locations is becoming increasingly advantageous.
That logic extends beyond geography. It applies to verticals, to buyer relationships, and to the specific knowledge that lets a recruiter have a more useful conversation than a competitor could.
The challenge isn’t if you should grow, but how
Dan Mori, founder of Staffing Mastery, addressed this dynamic directly in a conversation on The Staffing Show: “Focus should be a keyword for everybody this year. Once you establish your niche, you can teach your salespeople how to sell and qualify those specific roles — what problems they solve for clients, what issues they create when those positions are vacant. Now you can actually have a very custom-tailored sales process.”
That kind of precision (knowing the role, the client pain, the candidate profile) is hard to replicate when an agency is simultaneously trying to establish itself in multiple new markets at once. It’s not that expansion is the wrong move. It’s that expansion without that foundation tends to produce activity that looks like growth but doesn’t compound the way genuine specialization does.
The staffing agencies finding traction in the current environment are generally doing one of a few things: using remote and hybrid delivery models to serve national clients from a smaller number of physical hubs; entering new markets with a specific niche already defined; or choosing to expand only into geographies where their existing sector focus is undersupplied.
Before your next move
None of this is meant to suggest that an agency considering expansion is on the wrong track. Market conditions in 2025 and into 2026 do offer real opportunities. Healthcare, skilled trades, technology, and professional services are all areas where demand is outpacing available candidates in many markets.
The useful question to ask before any expansion decision is: “Do we have something specific to offer this market that a competitor can’t easily replicate?” If the answer is yes — if there’s genuine sector expertise, a strong local network, or a differentiated delivery model that travels well — expansion is likely to strengthen the brand. If the answer is “we think we can figure it out,” it’s worth pausing to consider whether that expansion will build on what’s working or dilute it.
FAQ for staffing agency leaders
Q: How do I know if my agency has expanded too broadly?
A: A few signals worth watching: fill rates declining across newer verticals, margin erosion that isn’t explained by wage pressure alone, and recruiter performance gaps between your core markets and newer ones. If your team can describe what a great candidate looks like in one market but struggles to articulate it in another, that’s a useful indicator.
Q: Is geographic expansion different from vertical expansion in terms of risk?
A: They’re similar in the sense that both require genuine market knowledge to do well. Geographic expansion can be lower-risk if your existing sector expertise travels with you. For example, if you place skilled trades workers and you’re moving into a new metro with strong construction activity. Vertical expansion tends to require more ramp-up time because the candidate profiles, client relationships, and credibility all need to be built from scratch.
Q: What does “deepening presence” look like in practice?
A: It can mean investing in more sophisticated candidate pipeline work for roles you already fill well, building tighter relationships with clients in a specific industry so you understand their hiring needs before they post an order, or using data to understand where your fill rates and margins are strongest and doubling down there rather than chasing net-new territory.
Q: Should I be worried about being too niche?
A: Narrowness is only a problem if the market you’re serving is genuinely too small to support sustainable revenue, or if it’s highly cyclical and you have no diversification. For most agencies, the risk of being too specialized is much lower than the risk of being indistinct. Clients and candidates alike tend to trust agencies that clearly know their world.
Q: How does this affect how I should think about M&A or acquisitions?
A: The current M&A environment rewards firms with clear positioning and defensible niche expertise. If you’re acquiring to add sector depth or strengthen a specific geography where you already have relationships, the strategic logic is sound. If you’re acquiring primarily to add headcount or enter a market where you don’t already have operational knowledge, the integration challenges may outweigh the growth.
