In today’s blog we will cover the way headhunters are paid, how much they cost, and the different fee models in which you can hire a recruiter.
Particularly, contingency or retained headhunters.
The costs for various recruiters are similar and there will only be minor differences depending on which company you work with.
It’s important to keep in mind that the fee models for permanent placement candidates versus contract, freelance or staffing can be different.
Staffing recruiters are typically never referred to as headhunters.
When looking to hire a headhunter you’re typically looking for someone who’s going to find a long-term full-time employee.
A headhunter is someone who is hunting high-level, typically director level or above, talent for an organization.
FEE MODEL FOR CONTINGENCY & RETAINED RECRUITING
A headhunter fee is always based off of the candidate’s first year salary as negotiated in an offer letter.
Depending on the headhunter, that first year’s salary can include a sign on bonus or any other compensation that happens in that first year.
The first year’s compensation typically would not include sales commissions or bonuses.
The only bonus that is usually included in a first year salary when calculating the recruiter’s fee is a sign on bonus.
Relocation expenses and anything else of that nature would not be included in the calculation.
RECRUITING FEE RANGES
Whatever the headhunter’s fee is would be multiplied by the first year’s starting salary.
For example, if a Director of Marketing is offered a position at $100,000 and recruiter’s fee is 20%, that would be a $20,000 fee paid to the recruiter.
In terms of the range of fees, these can vary greatly depending on which firm you work with and what type of position you’re working.
Fees can be as low as 15% and as high as 40% or even 50%.
The industry standard is typically between 20 to 25%.
One thing to keep in mind when hiring a headhunter, as with anything, is that you always get what you pay for.
There are a lot more firms out there nowadays doing extremely low fees like 15% while some other firms are up to 30-40-50%.
That doesn’t necessarily mean that you’re going to get a much better service than you might at the 25% range.
FOCUS ON WHAT’S IMPORTANT
As a note, I’ve written other blogs about tips for hiring headhunters covering more important factors than the fees alone.
You should be focused on hiring the right headhunter for your business than trying to get the best deal.
At the end of the day, if you hire a headhunter who is extremely cheap, but not going to get you the results you need, then you’re at a loss.
RETAINED RECRUITING
Retained recruiting can work in a couple of different ways, but is similar to retaining a lawyer.
Although when you’re retaining a lawyer you’re typically making a monthly payment to have them working for you.
This isn’t typically the way that retaining a recruiter works, although you can retain recruiters this way if you have substantial recruiting needs.
Typically a retained headhunter is going to work on one or a handful of positions.
When retaining a recruiter you’re typically going to pay an upfront fee, also sometimes known as an engagement fee.
You’re paying that recruiter for working a search for you and typically that recruiter will have exclusivity working that role.
Any money that you pay upfront to a retained recruiter will come out of your final invoice.
RETAINER FEES
A typical retainer is a third of the estimated fee.
Again, if you’re hiring a retained headhunter to work a position with an estimated salary of $100,000, that’s a $20,000 fee.
If the retainer is 1/3 of the $20,000 fee, you’ll pay roughly $6666, which would then be deducted from your final invoice.
Many retained firms ask for 1/3 of the fee up front, another 1/3 if the placement hasn’t been done at 60 days and the final 1/3 once the placement is complete.
Many companies stray away from retained search firms because any of the money that you pay up front is at risk.
If for some reason they don’t fill the role, you put it on hold or you find someone on your own, you’ve lost that money.
Aldebaran has a very unique retainer model that is extremely low risk, but still gets all the benefit.
If you’re interested in learning more about how we work you should reach out to us!
Although retained recruiting is slightly more risky, it is highly more effective than contingency recruiting.
CONTINGENCY RECRUITING
Contingency recruiting tends to be a favorite for a lot of companies filling lower-level positions.
Retained recruiting tends to be reserved for more high-level roles that require special attention.
The fee that you pay in contingency recruiting is contingent on the recruiter finding the right candidate and you hiring them.
With the contingency search you only pay a fee if and when you hire someone from that headhunter.
From a financial perspective it’s less risk because you aren’t paying any money upfront to secure having the headhunter work for you.
Again we can’t stress enough that you get what you pay for!
RECRUITERS PRIORITIES
Recruiters are always going to prioritize their search internally, and this makes sense.
If someone has paid us a retainer fee we are going to have the work go toward that job, it’s only fair.
Most recruiting firms will only be able to budget a certain amount of time for any contingency search.
For retained searches, recruiters will typically work a job until the job is done.
That’s why retained searches tend to be 30-40% and even sometimes 50% more effective than contingency recruiting.
QUALITY OVER QUANTITY
I talk with a lot of clients with tough roles to fill and they complain that contingency recruiters aren’t showing them good candidates.
This isn’t too much of a surprise.
If you have a tough role you’re looking to fill, a contingency firm is going to give it a shot maybe for a few weeks.
If they don’t come up with somebody it’s going to be less profitable or sometimes even negatively profitable for them to continue working the role.
Contingency firms simply cannot dedicate unlimited resources to contingency searches.
When you’ve got a tricky role or something that requires special attention you really want to go the retainer route.
The retained route is way more effective and if you have a good recruiting firm that you trust, this shouldn’t be an issue as it’s just an upfront payment.
If you’re confident they’re going to find you somebody then that’s the way to go.
CONCLUSION
So this is a basic rundown of how recruiting firms and headhunters are paid.
At the end of the day you want to find a recruiting company that is a good match for you, your company and your industry.
You need someone you can trust who’s going to find you quality candidates.
This should be your primary concern and cost should be your secondary concern.
You do get what you pay for and it is worth it to pay a little bit more for a good recruiter.
How do you find a great recruiter anyway? Go here for more: https://bit.ly/2EJyIrE
Have questions or want to find out about working with us? Let’s chat! https://aldebaranrecruiting.com/looking-for-talent/
