Contingency recruitment has long been the dominant pricing model in our industry. If you’re not familiar with that phrase, it means that the recruiter doesn’t get paid until a candidate gets hired. This has generally been pitched as being low-risk for the employer client: they don’t spend any money until they make a hire. On the flip side, I believe there is a common understanding that contingent recruiters may work harder – after all, they work for free unless a placement is made. But is this really the best business model for either clients or recruiters? What other options exist?
Contingency Recruitment Disadvantages
There are multiple disadvantages to the contingency recruitment model. The first, for recruiters, is that payment for work is not guaranteed. Many, many contingent recruiters have worked for weeks or months only to have the client pull the job or promote an internal candidate. I can’t think of too many other professionals who would be willing to put that much effort into their work and not get paid. However frustrating this is for recruiters, there are disadvantages for employer clients as well.
For starters, contingent recruiters need to work on multiple openings simultaneously in order to increase their odds of success. The more openings a recruiter is trying to fill, the less time available for each. This can lead to delays in hiring, which is definitely not good for employers. To hedge against this, employers may farm their openings out to multiple recruiters in order to increase *their* odds of making a successful hire. That spirals into managing multiple recruiting relationships, with recruiters (who are already trying to fill multiple roles) losing interest because they are competing with too many other sources. So now everyone is overstretched and can’t get the next person’s attention – this, friends, is not an advantage.
Exclusivity can also become a sticking point during contingency assignments. Recruiters will often ask for an “exclusive” assignment, meaning the employer won’t share the opening with other recruiters. This is great for recruiters who can get that, but in exchange the employer may be more demanding of your time, wanting some assurance they are getting first/top priority over other roles. At some point, every opening a recruiter has can’t be an “A” priority. If results aren’t happening quickly enough for the client, recruiters may find that exclusivity disappear.
Other Recruitment Models
There are two other primary business models. The first is retained search, which may be the most familiar. In a retained search, recruiters are compensated for effort, not results. Clients typically pay in three installments: the first third upon project launch, the next third when a shortlist of candidates is presented, and the final third up on the successful hire (or start date). The upfront money means that clients expect results. In a retained model, clients are paying for a defined recruitment process. Since they are financially vested from day one, they tend to be more involved and available to the recruiter. Similarly, retained search specialists can devote more time to a particular search because they don’t need to work on a volume basis. The process may be more consultative and it may be mostly used for C-level positions, where there is a smaller pool of potential candidates. For smaller recruitment firms, retainers can also offer a distinct cash flow advantage, since payments are being made on a more regular basis. Every small business owner knows that cash flow is king!
The other common model is a hybrid of contingency recruitment and retained search. Often referred to as “container” or “engaged” search, this model involves the client paying a portion of the fee (typically $1K – $5K) as a deposit, with the balance due when a hire is made. The deposit may or may not be refundable, depending on the agreement. The engaged model offers advantages to recruiters and employers alike. For recruiters, they can confidently accept a search knowing they will receive at least some minimum compensation for their efforts. They will likely have less competition to fill an open role since employers won’t want to pay engagement fees to multiple recruiters. Clients have some “skin in the game” and are more likely to be active participants in the hiring process. On the other side, employers can reduce the number of recruiters working a given role and know that they are viewed as a serious partner. Recruiters will apply more of their time and resources for engaged searches, since they are being compensated and the client is fully engaged. All of these factors contribute to an enhanced likelihood of success. Time kills all deals, and an engaged search can be an effective way to speed up the hiring process.
A Word About Guarantees
Recruiters may offer, and clients may expect, some sort of performance guarantee for all of the options above. For contingency arrangements, money back guarantees are somewhat common. Retained search recruiters are less likely to offer refunds and may instead offer a replacement. Guarantees may be conditioned upon speedy payment of the fee or may be pro-rated. Recruiters and clients alike should hold frank discussions about performance guarantees and make certain they are clearly explained in writing.