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How Contract Recruiting Could Put an End To High Agency Fees

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Posted by Kim Davis

March 21, 2017

piggy_bank_featured_blog.jpgEmployers have continuously debated the cost associated with the use of traditional third-party recruitment services. For many, the placement fees, which have ranged from 20% to 30% of the new hire's base compensation, can seem high. Often, the feedback is that the price of this service is too high. Questions arise like how much can it actually cost to deliver? And, given the high fees, how can the recruiting results be so mixed?

The above frustration has led to employers granting their search assignment(s) to multiple recruitment firms while continuing to work the open job requisition(s) themselves. Why? To start, they do not trust the third party recruitment firm to fill their openings. And two, they are attempting to avoid an expensive third party search fee by filling the open jobs themselves. Sounds familiar, right?

While it might seem cost-effective, the above scenario is actually one factor to the high recruiting agency fees. In many instances, this lack of partnership has contributed to the statistic that traditional third party search firms fill less than 10% of their assigned jobs. These search firms are not bad in spite of these statistics. It’s simply that the search firms realize the odds are stacked against them. They charge the high 20% to 30% placement fees to make up for the jobs that they worked where it resulted in no placement. Jobs where they have cost, but no offsetting revenue. Therefore, they make up for this lost opportunity by charging high fees.

If you find yourself hesitant to put your trust into third party recruitment services due to this mentality, here's some insight into what's driving high agency fees & how contract recruiting could put an end to it. 

 

What’s Driving High Agency Fees?

When the employer and recruiting firm are vying for the attention of the same types of candidates, there’s bound to be a duplication of efforts. Especially when you factor in identical geographies, industries and specialty skills. The following scenarios are all too common the key drivers for high recruitment agencies fees.

 

Multiple Candidate Submissions

The lack of a partnership has helped to create this high fee scenario. For starters, employers are incentivizing the wrong behavior. Third party recruitment firms realize that they are competing against other recruitment firms as well as the client organization. They only get paid if they make the placement. Speed is the name of the game. The idea is to submit a candidate before another recruitment firm or before the client organization identifies the same or other like candidates. On paper this sounds good. In reality, many candidates are submitted who have not been properly vetted for fit to or interest in the job. The employer then complains about the quality of the submittal and why they are paying such high search fees. Also, candidates being contacted about the same opportunity by multiple firms creates a bad brand message. The employer can give the candidate the impression of being desperate. At best, the candidate is confused by these multiple contacts.

 

Recruiter Commission Outweighs Candidate Quality

Another issue with this models is that most third party recruitment firms pay their recruiters on a commission basis. As a result, recruiters will migrate to open jobs where it is the easiest to make a placement and receive a commission. Generally, they will work a search assignment aggressively for up to three weeks. After that, especially in today’s strong economy, they will move onto a new search assignment with another client organization where they think it will be easier to have success.

 

Lack of Attention and Follow-Through

The third and last complication is that most recruiters attempt to work other similar jobs with two to three employer organizations concurrently. The candidates that they identify will be submitted to all of the employers increasing their odds of making a placement and receiving a commission check. For the employer who is paying the high search fee, they feel this is unfair. They are paying the recruitment firms to source candidates for their open job(s). However, they only pay for this activity if it results in a placement.

 

The Contract Recruiter Solution

So what is the alternative? The answer is what is known as the “OnDemand” search. This is a partnered approach between the recruitment firm, via a contract recruiter and the employer, or the client. In this arrangement, both parties take on shared risk and responsibility where they make a financial commitment to fill the agreed upon job opening. Where the recruitment firm assigns a dedicated recruiter with both functional and industry expertise, and then pays them a salary versus paying out a commission. The end result -- over 90% of the open jobs are filled on time and with the best fit hires at roughly a 50% lower fee.

In terms of price, there are generally two models. One is where the client pays for the contract recruiter services, and the second, operates on a performance-based model.  Sound too good to be true? Well, it’s not when you consider the framework. A contract recruiter, operates off of a well-established recruiting process. Typically brought in to support hiring demand, the contract on-demand recruiter can work on-site at your location, virtually or from an established recruitment center.

 

If you are interested in learning more about reducing cost-to-hire with outsourced services, download Yoh's eBook below. Or, feel free to drop me a note in the comments section.

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This blog was written by Kim Davis. Kim Davis serves as Vice President, Sales for Yoh RPO. He is responsible for new business development as well as acts as an internal strategic consultant to RPO operations. Kim is a serial entrepreneur starting multiple talent acquisition/RPO businesses and is a recognized pioneer in the RPO vertical. 

Topics: Recruiting Trends, RPO, Talent Acquisition

Disclaimer: The opinions expressed on the blog site represent those of the author and do not reflect the opinions of Yoh, A Day & Zimmermann Company. Yoh is not responsible for the accuracy of any information supplied by guest writers. 
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