There is sometimes a downward pressure on permanent recruitment fees. In my experience across Asia, Australia and the Middle East, the prevailing rate for permanent recruitment has been between 20 – 23%. Sure, I can list many examples of outliers above and below, but most of the time the percentage of 20% is pretty standard.
Only last week, a client asked me if I would work for 15%. I turned the conversation back on them. I asked them if they would do the same thing if one of their clients requested this. I also asked them what would incentivise me commercially, if I knew all of my other clients would pay me more for the same individual.
Way back in time, before Dubai saw fee percentages rise, the prevailing rate was 1 x months’ salary as a fee. In other words, it was 8.33%. It was horrible. At that rate, you could only afford to throw CVs at a client, with little time spent evaluating candidates. It was a dreadful experience and service for all involved, including the client.
Over time, as agencies evolved, it became more competitive and surprisingly this led to an upward trend in percentages. Increased competition usually leads to a reduction in price but that is not true in the case of recruitment. Clients were convinced that they would benefit from a far more involved search process whereby we could afford to deliver a superior service.
In short, the rule of thumb is that, in my opinion, it is best to stick at 20% – 23%. For the consultative recruiters out there, you should aim for the higher end of the range. If you’re very good at delivering and you provide value up and above just sending CVs, never start negotiations for less than your worth.
Though I feel this rule has worked well for me over the years, I can think of some circumstances where I did agree to go below 20%.
Volume projects & team build-outs
I recall Robertson Smart participating in a pitch to recruit a very large number of restaurant managers for a well known burger franchise. It was a left field but enormous project as we were required to search for talent across all states in Australia. The client opted not to pay a retainer, but they did want to have the search handled exclusively.
We agreed on a formula of a reducing scale. I can’t remember the exact figures, but I recall the first five hires would be at 20%, then we would drop by 1% for each tranche of five successful hires.
In a recent article, I recounted the story of a USD $630K team build-out fee. This was in fact one of a large number of team build outs that ended up totalling USD $2.6M in fees, to the same client. We came in, from memory, at 25%. A very conventional contingency approach. The large fee was for the CEO, but after some time, it became apparent that they were building out a large team.
The client then imposed a similar solution to our friend with the burger franchise. Rather than a generic reducing formula, we agreed fixed fees for a number of positions. It was below 20% but it was a very profitable project for us, and equally for the client.
Upfront payments in return for a reduced percentage
I had a very interesting conversation with an executive search partner recently. One model being suggested was to significantly reduce the usual fee, but to be retained with a guarantee of a minimum number of fixed searches to be completed.
In this case, you write up revenue on the board from day one and you gain the clients’ commitment.
If it is a good enough model for a global executive search firm, then why would it not be a great model for a contingent recruitment consultancy? In exchange for a minimum level of business and an-upfront retainer, then why not consider a slight discount.
Supporting your client in times of hardship
There isn’t a better time to share an example of this than today, as we recover from COVID-19. At times of extreme economic stress, your clients may request a discount on your standard agreed percentage for certain placements or projects.
It may be psychologically difficult to lose a portion of your revenue, especially while you’re likely suffering from reduced placement volume, but your clients will never forget the time you supported them when times were tough and you will build a stronger relationship because of it.
So should you recruit for less than 20%?
Those are just three examples of where it may make commercial sense to drop your percentage and I’m sure there are many more. In each case, the recruiter or client received something back in return and I think that is the key.
Back yourself when your client asks you to drop your percentage. Prepare and practice your rebuttals. In my experience, you need to be utterly confident in yourself that you are delivering outstanding service to your client, that offers a better experience than an agency charging 15%.
This is more than possible and it does illustrate that it is possible to drive a percentage upwards, not just downwards. Don’t reduce your price unless you can identify a clear benefit in doing so.
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