Here's a little secret. Fees for Direct Placement typically range from 15%-33% of the first full year salary. When negotiating fees with a recruiter calling in, most managers focus on the lower end of 15-20% for a placement, figuring that the less they pay, the better for their budget. Sure, a top notch DBA in the right salary range or a Salesperson who makes mostly commission might be worth 30% of their salary, but those rare occasions can be dealt with by offering a higher rate to recruiters for that single placement, right? You don't have to answer. I've seen those contracts.
Truth is, you're a great fool or a compulsive gambler if you're counting on your recruiters to work harder for you based on your needs instead of what you're paying them. The problem is an easy one to understand. Paying a recruiter 15% is overpaying them, while paying a recruiter 30% is underpaying them. Make sense? Let me see if I can explain.
In a knowledge economy, the average worker provides something like two and a half to three and a half times their cost in revenue. At times when they are drinking coffee, taking vacation, surfing the net, or playing the office football pool, they are underpaid for what they do. At the times they are creating compelling content for your website and attaching the database to your user interface, they are woefully underpaid. These two extremes are averaged out for your worker, and acceptable in the eyes of management as long as the bottom line is profitable.
Graphic designers are a great example of this. Designers make between $20 an hour and $150 an hour. What accounts for this discrepancy is experience and talent level, but in the middle ranges of those numbers, companies are stuck in a quandry. When your designer is coming up with an ad campaign (conceptual work), they are worth several hundred, or even several thousand dollars. Think of the Nike logo. The designer who pulled that from Winged Victory didn't just grab that out of thin air. How much has that logo, as simple as it is, been worth to the Nike? How much was the designer or design firm paid? Now take a look at production work like converting web copy into HTML. You could pay high school students to do this for $10 an hour, and yet your graphic designer making $60 an hour is the only one in your organization doing this work. The designer position as a whole is both overpaid and underpaid - simultaneously.
The same is true for your outsourced recruiting. When you engage a recruiter for 33% to find you a desktop support specialist or anyone entry-level in sales, you're overpaying. When they bring you your director of sales that improves your bottom line by 12% for the next seven years, you've made out like a bandit and should never complain again. So if this is the case, why can't managers pay 10-15% for the entry-level or hard to find positions while paying 25-33% or more for the high-level positions? You can, but you shouldn't expect to get much response for the higher level responses. The answer is a matter of time. It takes time to understand a companies culture, hiring process, and true needs. The higher a position, the more time it takes to understand what they are looking for. If a company only wants to pay you a single fee for a high-value placement while passing easier work on to other recruiters, you can find yourself chasing purple squirrels, only to find you can't close them on the company or work with the company to bring them on because they aren't interested in a long-term placement with you. Without that close connection, you're just a resume jockey throwing paper, and that hurts your ability to recruit.
What it comes down to is trust and the relationship a recruiter builds between his team and your hiring managers. In a good relationship, you can turn to your recruiter and ask them to help you with a high-level search. if they trust that the relationship is profitable, a firm can afford to put time and energy into that high-level hunt, knowing they will also get some of the lower level positions that give them the incremental revenue neccesary to prosper as a company. Yes, you're overpaying for your lower-level people, but you're underpaying for your top-level people.
Where most companies go wrong is trying to squeeze all fees, with no "reward" for good work. To be blunt, when you sign an agency up for 15% search fee and they agree, you are not getting their best efforts, or their best candidates. You are getting paper thrown at you by recruiters who figure they might get lucky if your search efforts are poor. They aren't staying late and calling into companies to find you your person. They're posting the job in obscure corners your recruiters don't know about and waiting for someone to apply who is just good enough to get an interview. So in one of the strange quirks in business - paying a recruiter 15% is overpaying them, while paying a recruiter 33% may be underpaying them.
I agree, as a 3rd party guy, for the most part. Maybe we are just different, but we base our efforts not on the fee structure but by the commitment of the client to actually interview candidates and make offers.
There are clients out there whose process is too bureaucratic and frankly take too long to get candidates in for interview. We do not waste much time on those clients as the simply are not responsive to the hard to find candidate.
On the other hand, small companies who are responsive, engaged, flexible and committed will get our full attention, even for lower rates.
The thought is this. We will work hard for $10,000 that will get closed in a week. We will work less on a potential $20,000 that may or may not ever get filled due to a painful interviewing process.
We also have small clients that cannot pay a lot due to growth phases, cash flow challenges due to growth, etc. We will work on those jobs as the client is committed and will guarantee us exclusives on future needs.
In some cases, we will work with clients on payment plans. We have allowed clients to pay us over 90 days in order to help cash flow.
As the market continues to tighten, our rates are climbing (see supply and demand), however, we are committed to assisting our clients secure the best talent. If we have to be flexible on our rates and terms in order to secure the long term relationship...so be it.
We are Intronic Solutions Group and we are VERY GOOD at what we do.
Posted by: Doug Burris | June 19, 2007 at 09:31 AM