03 Mar The Dreaded Recruiter Fee

Joe Contractor was feeling good about himself six months ago. He was looking to hire a Project Executive to lead the companies’ Health Care Market Sector, and wasn’t having any luck with the job boards, or his own personal networks. Therefore, Joe decided that he would hire several recruiters, but decided to talk them down on their fees.

The position that Joe Contractor was looking to fill would pay a $150,000 salary, and if he agreed to a 30% recruiter fee, he’d be on the hook for $45,000, if he made a hire under this type of agreement. This fee just didn’t sit well with him. After doing a lot of shopping, however, Joe Contractor was able to get five recruiters who said that they’d be willing to work for a 10% fee ($15,000) for filling the Project Executive position, and Joe was happy with his negotiation work. After all, he felt that he would save himself $30,000 in recruiting fees.

Six months after engaging the five recruiters, Joe still didn’t have his position filled. He did get a few resumes during this time, but many of them, he’d already seen from his job board postings. Most of these candidates were job hoppers, or people who had no previous experience in construction.

During this same period, Joe Contractor’s competitor down the road, Charlie Construction, had a similar opening that he was trying to fill, but he had already filled his position after a three month search. In addition, Charlie’s new executive had already secured two new multi-million dollar construction projects during his three months on the job.

Joe Contractor’s company had competed with Charlie Construction for those same jobs, but the prospective clients elected to go with Charlie, because they felt comfortable with the person leading their projects (Charlie Construction’s new Project Executive). As a result, Joe Contractor was frustrated, and wondered why Charlie Construction had less trouble than he did in finding a good project executive.

Charlie Construction used a different approach when he was looking to hire his Project Executive. He decided to hire a recruiter who focused on Construction, and agreed to pay a 25% fee. During the three month search, Charlie was presented with four candidates. All of them were gainfully employed, and all of them worked in the construction industry. Charlie did not receive any job hoppers, and after interviewing each candidate, he extended an offer, and a hire was made.

Charlie Construction had to pay a $37,500 search fee, but that turned out to be a bargain after the new hire was able to win a couple of jobs that the company wouldn’t have won had they not filled this position.

Joe Contractor had engaged five recruiters, but over the six month period, three of them left the industry, and the other two did nothing more than post the positions on job boards. These recruiters found other clients willing to pay higher fees for similar positions, and kept their direct recruiting efforts focused on those clients, while Joe Contractor received the leftovers.

Charlie Construction, however, hired a recruiter with 20 years of experience, to work on filling his position. This recruiter knew the key players in construction, and contacted them directly. He didn’t even use a job board, but found very good candidates.

Employers should compare contingency recruiting to real estate sales. Ever try to hire a realtor for a discounted commission? In most cases, it’s possible to get a broker to reduce their fee from 6% to 5%. Negotiating lower percentages, however, usually results in few home showings.

Most realtors work on a multiple-listing system where many brokers can show, and sell homes listed through the network. If a home gets sold, the listing broker, and selling broker split the commission. Five -Six percent is probably enough to motivate realtors to show your home. Less, however, will do the opposite. If your home is on the market with a 3% contract,for example, and similarly priced homes are on the market with 5-6% contracts, which homes are more likely to get realtor showings?

As an employer looking to hire recruiters, instead of questioning why some recruiters ask for 25%-30% fees, ask why others would be willing to work for less. Want someone to do the job the right way, pay them market rates, and improve your chances that you’ll get the results you want.

Posted by John Kreiss on February 12, 2012 at 7:15pm.