If you are at a stage where you are considering using the services of a recruitment agency, there are several factors to consider when taking that step. Naturally, one of your primary concerns may be the cost. So how much do recruitment agencies charge? To ensure you have a clear picture, I will discuss the different services available and the typical agency fees for a Permanent hire.
Employing new members of staff be expensive and time-consuming. From the actual cost of placing job adverts to the time spent reading CVs and conducting interviews, you will be surprised how much you spend on your current recruitment process.
- 85% of HR decision-makers admit their organization has made a bad hire, and a third (33 per cent) believe that these mistakes cost their business nothing
- a poor hire at mid-manager level with a salary of £42,000 can cost a business more than £132,000
- the hidden costs involved in bad recruitment include money wasted on training, lost productivity, and increased staff turnover
- four in ten employers (39%) admit that their staff’s interviewing and assessment skills should be improved.
Now you are aware of this staggering report and the potential cost to your business, it may be time to consider the help of professional recruitment service.
Cost can be a sticking point, but understanding how recruitment agencies get paid will help you identify the best recruitment agency for your needs and budget.
Contingency or Retained?
For permanent hires, fees are split into two categories. The most common is contingency recruitment, in which the employer pays the agency when they make a successful placement.
The other is retained recruitment. In this scenario, agencies are paid in stages, often upfront once they produce a shortlist of candidates. The final payment is then made when they place someone.
What’s the difference?
Contingency – Method
This is the most common and straightforward recruitment model for permanent hires. Contingency recruitment pushes the agency to hire quickly, as the employer only pays them upon a successful placement.
Contingency – Cost
Agencies are offering just 10% of the starting salary and even lower. Sounds like a great price right? Look at this another way, an agency offering a 10% fee will give you just 10% of their time.
Often with “race to the bottom fees”, quality is sacrificed for speed. This ultimately leads to issues throughout the process or once the candidate has been hired.
If the agency has your role with a 10% fee, but they are also working a role paying 15%, which do you think they will be focussing their efforts on?
Standard recruitment costs tend to range between 15% and 20% of a candidate’s first annual salary, but this can go as high as 30% for hard-to-fill positions.
Contingency – Problem
This working method is basically a race to the finish, where agencies compete to be the first to provide a candidate. While this certainly makes for quick hires, it means that recruiters can’t afford to hang around and benefits those that have access to a large database of job seekers.
Contingency recruiters are not contracted to the role and so do not guarantee to fill the role. What I mean by this is that they can walk away at any time and will prioritize easier to fill vacancies over yours. This is known as working “closest to the fee.”
You may be waiting months for CVs for a vacancy that is not a priority for the agency. If it is not a priority, will you receive the service you deserve or candidates at the required level? Unfortunately, I’m afraid the answer is no.
Retained – Method
The retained method ensures more time is taken to search for the perfect candidate, casting a search net wide and deep.
As the agency is retained, they can take a more considered and systematic approach to scout the market and identify passive candidates (those who are not active in the market) to pitch your business and opportunity.
Often the best and most sought-after talent is not on the job boards
Unlike the contingency model, a retained search is structured, methodical, and worked to agreed timeframes and milestones. This gives all parties, you, the agency, and the candidates, an obvious understanding of the process. This clarity, therefore, brings a more relaxed and enjoyable employer and candidate journey.
Also, agencies love to work this way by receiving some of the fee upfront; agencies can afford to spend more time finding the very best candidate instead of someone from their database that’s merely ‘good enough.’
The agency is contracted to you. They are committed to filling the role regardless of how long that may take. This ensures both you and the agency have “skin in the game” and are committed to finding the perfect candidate, regardless of how long that may take – it will be a success.
Retained – Cost
The cost of a retained search can range from 20% and, in some cases, up to 50% of the candidate’s starting salary. Depending on the difficulty of the search, the number of available candidates, location, etc.
Rather than simply paying a fee upon a successful placement, a retainer fee is staggered throughout the process. Thus, it essentially rewards an agency for their considerable time and investment into your role.
An agency’s fee is usually paid in three parts:
- 1/3 Up-front.
- 1/3 Upon producing a shortlist.
- 1/3 When the placement is made.
Retained – Problem
The most obvious problem will be the cost if you solely compare the numbers against the contingency cost. It is more expensive and can add extra pressure to your budget.
Another may be the time it takes to search. For example, a retained search can take 6 to 8 weeks as standard and up to 12 weeks, with a more complex search or location difficulty, such as an international search due to time differences.
When deciding to use recruitment agency support, you must make the right decision for your business and brand.
You need to decide if you would like to keep costs low. Then it is a case of the fastest first, which often means compromising on quality. Or are you willing to pay slightly more for a methodical and thorough approach ensuring the right candidate is hired the first time?
At the start of this post, I mentioned the REC report and how a poor hire at the mid-manager level with a salary of £42,000 can cost your business more than £132,000. Now, a retained fee doesn’t seem too expensive.
Every business is different; you have different needs and different drivers, so only you can decide your hiring route.
If I can answer any questions regarding the two recruitment models, feel free to reach out.