The agreement for fees between independent recruiters and employers can take many forms and have been evolving as the cost of being an independent recruiter has increased when you want to update your business to include the latest technology tools and assessment options. These added annual services that a recruiter wants to maintain to be delivering efficiently for their clients in a tight candidate market have led many firms to update their pricing and reconsider a straight contingency model. This article shares different fee structures we see in our recruitment network, NPAworldwide. Our recruiters specialize in executive level placements, who join to share jobs and candidates and leverage other members.
What are the differences between these fee arrangements for managers and other professional level positions?
- Contingency Recruitment
As the name suggests, recruiters with a contingency recruitment fee arrangement agree to search for a candidate to fill an employer’s open position. The employer is obligated to pay the recruiter only if a candidate the recruiter presented to the employer is hired for the open position. The timing of the payment of the fee depends on the agreed upon payment terms and varies greatly by employer.
- Container/Engaged Recruitment
While different versions of this type of recruitment exist, typically a recruiter will receive $7,500 to $10,000 before the search begins. Of course, this upfront fee amount will vary depending upon the salary range of the open position. This portion of the fee is non-refundable and subtracted from the final fee payment after a candidate is hired.
This type of fee option positions the recruiter as a professional service provider for an employer similar to the relationship an employer has with an accountant or attorney. If you are a contingent recruiter now, this option is a good idea to trial with current clients. A way to do this might be lowering your fee percentage, but in return asking for an engagement or container fee. Perhaps instead of 25% for one search, your fee percentage is 20% for three searches with upfront engagement fees paid for all three.
- Retained Search
Retained searches focus on key management positions within a company including C-level positions. While fee arrangements for retained searches may vary, typically, the employer commits to three payments. The first payment to the recruiter is made before the search begins. The second payment is made to the recruiter after a certain number of candidates are presented to the employer. Final payment occurs after a candidate is hired.
When looking to switch to a retained model, the value that you provide to clients should appear to extend further than just providing candidates. Many firms that work mainly retained search position themselves as more of a a consultant and as a hiring expert. Ask your client to come in and evaluate their hiring, send your clients articles or a newsletter highlighting your knowledge of the industry or market insights. Provide personalize market intelligence regarding industry trends or HR issues.
If you are currently thinking about changing up your fees for 2020, here are some great brainstorm questions:
What do you consider the value on your time and expertise?
What are your annual operating costs, how many placements cover that?
What price point do you think ensures your fees are competitive without being “cheap”?