For many recruitment firms, the shift from one style of recruiting to another is a difficult transition. It is not unusual for those starting in the business to begin as contingent recruiters. And some firms find this model suits them well and continue as contingent recruitment firms with no need or desire to change. If it works and you are happy, your clients are good with your method, then keep a good thing going. Having recently spent a few days with a collection of 60-plus firm owners and recruiters, I saw a great desire on the part of many firms to move from purely contingent to at least a partially retained model. Most often there was a desire to offer both models dependent on the situation and the client.
Contingent vs. Retained
So many of those within and outside of the recruitment industry place more importance on the difference between contingent and retained recruiting than may be appropriate. At the end of the day these models define the methods of payment, the commitment between recruiter and client, signal the way search will be done, but rarely are an indication of skill or ability. Sometimes I hear those that do retained recruiting placing themselves in a more “elite” category than those that “just” do contingent recruiting. While it is generally true that if you are doing retained search you have been in the business longer and your relationship with a client is more evolved, it cannot be generalized that retained recruiters are better or more effective than contingent recruiters. Each recruiter needs to be evaluated on their own level of success and capability and so much is dependent on the roles hired for and the client company’s desirability as a place to work. Some clients will object to the commitment needed to engage them in a retained search. This may be based on experience or sometimes even fear of paying for effort versus results. You need to evaluate each client situation and make the appropriate choice of recruitment model.
Different Models for the Shift
I will cover the methods I have seen and heard about where the shift is mainly from contingent to retained. The reverse does happen but with far less frequency. There are also even more unusual shifts that are made, including the shift from contingent to hourly.
The Partial Retainer
The most common start for those moving from contingent to retained starts with the request from recruiter to client for a “retainer.” I think it is interesting the way these can be positioned by the recruiter. Sometimes I hear of recruiters asking for a portion of an agreed-upon total maximum fee upfront. So 1/3 on agreement to do the search, 1/3 on submittal of a short-list of candidate and 1/3 on completion of 90 days of work by the candidate. The “retainer” is intended to be a fee collected and kept regardless of success. Some are willing to refund portions of this fee.
The Engagement Fee
Some recruiters are asking for an “engagement fee” of $2,500 to $5,000. These fees are typically positioned as non-refundable but deductible from the total fee due on the placement of a successful candidate. So in the end a 25% fee less the prepaid “engagement fee.”
This is somewhat unusual but used by some contingent recruiters not so much to move toward a retained model, but more to protect their downside loss. I have learned of some recruiters that will work contingent but if unsuccessful, have negotiated with their client for an hourly rate upon the closure of an unsuccessful search that is based on hours of work invested. Where I have seen this most commonly applied is when the client’s in-house recruiter is working on a search with a contingent recruiter. It protects the independent recruiter from investing time in a dead-end project.
One recruiter I talked with offers their client a purely contingent rate of 25% fee on any placement. When they balk at the 25% or try to negotiate to a lower fee structure, the recruiter offers a new model that includes a retained component. They refer this as their “exclusive rate.” The exclusive rate means the client gets first priority on the recruiter’s time and attention, but a monthly retainer is required and it is not refundable. The max out-of-pocket paid for a successful placement is 22% of the first year salary. The advantage is “priority service” for the client and monthly income for the recruiter with a maximum cost pre-established with the client.
Above are all baby steps toward a retained methodology where perhaps recruiter and client have no experience with retained recruitment. Those that are serious about making the move to retained recruitment need to draw a line with clients. I have seen this successfully done as the market for talent tightens; the successful recruiter will be in a position to write the rules with clients. For many years this was a near impossibility…few jobs and many candidates. As the market for candidates tightens, recruiters will be in a position to consider a change in their pricing practice and models of recruitment. Perhaps it is a strategy that says any new client must be retained and billed monthly. Taking the leap from contingent to retained will require much energy, planning and persistence. In each case, the client company’s situation and experiences with recruiters will influence the ease of any proposed change in pricing plans.
I hope you will share both your experiences and models that are being used to shift from contingent to retained recruitment. I am also interested to learn about firms or recruiters that have shifted away from retained and have gone back to a contingent model. Please post your thoughts below…