Do you know how much Banking and Finance companies paid for candidate placements in 2018? The average recruiting firm received $33,922.
Recruitment agency fees don’t have to cost an arm and a leg, but the numbers make anyone feel like they’ve lost limbs.
How do you find recruiters that don’t hurt the bottom line? Is there a better way to negotiate your headhunter fee percentage? Can you build a talent pool that fits the budget?
There’s good news: you can do both. Read on to find the secrets you need to negotiate a better recruiter fee agreement.
Why Are Recruitment Agency Fees So Expensive?
Recruiters take plenty of flack, but fees drive most of the criticism. How can a headhunter justify charging thousands of dollars to introduce you to a candidate? On the surface, this looks like a ridiculous fee for simple work.
A fair question deserves a fair answer.
A majority of recruitment firms work on contingency. These agencies won’t charge you a dime until they’ve introduced you to someone you hired. Fees for this type of service vary, but 10-30% of the annual salary remains standard.
The charges you’re experiencing come from two sources: the time spent to find someone and a premium fee for finding them on contingency. While other industries enjoy higher placement rates, the majority of candidates an IT recruiter sends to a client will not result in a job offer. Most clients a recruiter works with have three or more companies sending them potential hires.
How is that your problem? The economics remain the same for any business. If you offer the expertise that comes at enormous personal risk, you have to charge a premium to pay the bills.
How Do Recruiters Charge for Their Services?
While contingent contracts remain dominant in the industry, there are other options available. How different firms choose to charge for their services depends on the best practices for their niche. Current headhunter fees come in the three different flavors below.
Retained recruitment services require a recruitment fee percentage that is calculated based on the annual salary of the position. Standard payment methods include one-third to start, another third at a landmark in the search, and the final amount after a candidate accepts an offer.
You’re going to pay a standard hourly rate for a recruiter to conduct this type of search.
“Renting” a recruiter can be a double-edged sword. You’re likely to have more day to day contact, but you’ll want to set clear expectations for the number of hours you can budget for each week.
Nothing gets paid until the search finishes, but you can expect to have more quality than quantity. Recruitment firms that work on contingency survive based on the number of candidates they submit each day.
Don’t expect a sharpshooter approach with this type of recruitment. Expect the shotgun approach.
What Should You Expect to Pay?
You can expect most recruitment firms to charge based on a percentage of the annual salary. That’s not the only service fees out there and you need to be familiar with the average headhunter fee.
The percentage of the fee depends on the industry, but a headhunter fee percentage ranges anywhere from 1% to 100%. Don’t expect a cap for the fee. In fact, a minimum charge comes standard with most contracts.
Percentage fees change based on how the market fluctuates, but it’s an obvious point of contention. Recruiters want to get the highest percentage fee they can without losing your business. Hiring managers need the lowest possible fee that still provides them with quality candidates.
You can take the guessing work out of the fees by researching how many qualified candidates exist for a position. The higher number of qualified candidates, the lower the fee.
It’s important to keep in mind that the percentage fees do not have a relationship to the quality of a candidate’s work. Recruiters have a vested interest in finding candidates who boost your expectations with their salary. You could get the same quality of work from a less-experienced candidate, or vice versa.
You don’t see fixed fees often, but they’re growing in popularity. Adding any level of transparency to the recruitment process drives customer loyalty.
The complexity of business to business relationships drop this as a possibility in most cases.
Hiring managers don’t feel comfortable agreeing to a fixed fee because they’re afraid of paying too much for the service. It’s always possible to find a cheaper candidate on your own.
A good number of recruiters avoid fixed fees completely because it gives away their leverage for negotiation. Also, as the clock ticks on their search, their return on investment ticks further downward.
If a company doesn’t have a policy against it, fixed fees can be a mutually beneficial option. Employers have the opportunity to establish a fixed set of criteria with the firm. In turn, the recruiters have more clarity about their company’s revenue.
How to Get the Best Headhunter Fee Percentage
Most recruiters want this: 30% of the annual salary and a clear agreement about payment. How do you negotiate with companies that require that kind of margin for their services, though?
You have to start from the beginning. First, recognize any firm’s goal: find candidates for you and get paid. Your goal is more complicated because you have an objective and requirements that need addressing.
These are three proven strategies that recruitment firms (the smart ones) will consider:
- Ask if they will be willing to lower the fee percentage for an exclusivity agreement.
- If you expect to need a large influx of new hires, ask for a bulk agreement that lowers the fee.
- Ask if they will consider a lower percentage fee if you agree to remit payment faster than they ask for in their contract.
If you treat recruiters as leeches on your bottom line, they’re going to be villains no matter how good a job they do for you. Stop treating the people you talk to like objects or barriers. Match your objectives with theirs and get down to business.
How to Use These Secrets
Remember that you have more in common with a recruitment firm than haggling over the headhunter fee percentage. Start negotiating using the knowledge you gained from this article and you will take the sting out of those invoices.
Now that you know more about recruiter’s fees and secrets to negotiation, how do you put it all together? Call 1-646-663-1946 to talk to an impartial expert who will connect you with the best recruitment firms in your industry.