What Is Flat Fee Recruiting and Should You Use It?
This is something we’re seeing more in the market. Many companies and clients are talking about how they want to do a flat fee recruiting structure. And this was part of a larger educational topic when it comes to how recruiting firms are compensated. The traditional compensation model for a recruiting firm is that you pay a percentage of the first year starting salary for whatever the position is, and the salary that’s negotiated in the offer letter. So, the industry standard and the industry average is 20% for permanent placement. The hourly markup for contract workers can be as high as 50 or even 60%. There are many executive search firms out there that charge much higher than 20%. I’ve seen fees as high as 40 and even 50% on permanent placement. So it really depends on what company you go with, but the standard tends to be 20%.
KNOWING THE INDUSTRY AVERAGE
Sometimes, I do see companies that are offering below 20%, even as low as 15%. This is always interesting to me, as being someone who runs a recruiting company, I don’t understand how someone charging 15% would be able to keep a business running. You really do get what you pay for in the market, so working with a company that charges 15%, the odds are that they’re not going to be as good quality as someone who’s charging more toward the industry standard. Here at Aldebaran, we charge between 18-22%, depending on the contractual relationship we put together with clients. 18% is our VIP program and 22% is our standard contingency program. Our fees are lower or higher depending on the level of risk that we’re shouldering and depending on the level of commitment our clients are willing to put into the search with us.
FLAT FEE RECRUITING
A flat fee recruiting model is going to take out of the equation the percentage. So for example, with your traditional recruiting model, a salary of $100,000 with a 20% fee is going to be a $20,000 fee, and that dollar amount can go up and down depending on what the salary is. A flat fee takes the percentage out of the equation and assigns a number no matter the position and no matter the salary. So maybe it’s a number like $15,000, $20,000, or $25,000. Whatever it might be, that number is decided on beforehand to the search, and then regardless of how the search ends and what the person’s salary is, that is the fee that’s paid to the recruiter.
This is attractive looking to many companies, because they are easier able to budget for recruiting and HR fees when it comes to hiring for particular roles. Oftentimes, they’ll even end up saving money, because they might find someone who’s at a much higher salary, who if they were paying a recruiter on a percentage base, they would have spent more money than the flat fee that they’re paying. So, this can be an attractive model to many companies, because it helps them a lot.
A LOSING DEAL
For a recruiting firm, this is less than ideal, as one, you’re not going to be getting paid the way a traditional recruiting firm gets paid, and therefore, it’s extremely likely that you are going to leave money on the table. Most flat fees are always going to be negotiated below the industry standard and below what the position is really worth working, so it ends up, at the end of the day, being a losing proposition for a recruiting firm.
YOU GET WHAT YOU PAY FOR
So I’ll go back to what I always say, that you get what you pay for. That’s not just in recruiting. That’s everywhere in the world. 99% of the time, you truly do get what you pay for. If you pay discount prices, you get discount products and discount services, and that’s what you need to keep in mind when you are negotiating and signing up with a recruiting firm. You need to ask yourself, “What am I buying here? What level of quality am I looking to buy here?” Recruiting companies run the gamut from horribly ineffective to barely ineffective, and that’s most recruiting firms. Even your average recruiting firm out there is barely effective.
YOU’RE ONLY AS GOOD AS YOUR TALENT
When you find a good recruiting firm, you want to figure out the best way to squeeze as much juice out of that as you can. A good recruiting firm is going to know they’re good, and they’re going to know the value they provide, and they’re likely going to be a little bit more expensive. Hiring good talent should be one of the number one things that you invest in for your business, if not the number one thing. Your talent is everything for your company. Your company will not succeed, no matter how good your product or service is, without the right talent to get it to market, to get it into people’s hands, and to get the word out there.
KNOW THE RISK
So most of the time, a flat fee recruiting model is not going to be worth it, because a recruiting company offering a flat fee recruiting model is likely offering that model to try and compete because their services aren’t up to par to charge a normal price. A flat fee recruiting model is a discounted recruiting model, and you have to remember, again, discounted prices get you discounted products and services, and that’s what you have to expect. Now if you’re okay taking that risk, then go for it, but you have to know that risk is there. Again, I don’t recommend taking that risk with this part of your business. Recruiting and talent acquisition should be the place where you are investing the most money so that you get the best talent.
At the end of the day, it’s less about fee structures and more about the recruiting firm. You want to find a recruiting firm that is truly going to represent your business and find you the right talent. Good recruiting firms are needles in a haystack typically, so you need to do your due diligence and your homework to find a good one, and when you find a good one, hang onto them.
We’ve written other blogs about how to hire, interview, and find recruiting companies, and you should check some of those out as well. Good luck!
Looking for more ways to find, hire and retain the best talent? Here’s some more help: https://bit.ly/2MpWFbg