3 Types of Recruiting Firms, Plus their Fee Structures & Functions, to Help You Fill Crucial Job Openings
You have an open position; you need to fill the job ASAP. You would like to hire an external recruiter, but it’s overwhelming – it seems there are all types of external recruiters and agencies, and they have different price structures and programs. Where do you start? What do you do? How much is the right amount to pay?
Three Types of Recruiting Firms
For simplification purposes, it’s fair to say there are (basically) three types of external recruiting programs. When I list them all out, many people will say there are more, and it’s true – however, listing the trio below streamlines the process and covers the most commonplace scenarios.
1. A Recruitment Firm that Offers Research Services
This is the least expensive way to gain lists of candidate sources. These firms charge an hourly rate, and depending upon the scale of research you want, the project could be a 10-hour, a 25-hour or even a 50-hour project. For example, let’s say you’re hiring a VP of Digital Marketing. You tell the firm you want all the current VP’s of Digital Marketing at retail brand companies situated on the East Coast. Or that you want all the Directors of Digital Marketing at any Fortune 500 company throughout the entire U.S.
Both of these criteria would necessitate a different amount of billable hours. The firm should tell you up- front approximately how many hours it will take. So, for instance…there are more Directors at Fortune 500 companies around the U.S. than there are VPs at retail brand companies on the East Coast, so it would be fewer hours for the VP search – but don’t base this project solely on cost! Instead, consider in detail what you need for the role (skills, experience, geographic proximity, etc.).
What you’ll get in 1-2 weeks’ time is a list of all those people currently in those roles. You can add another step where the firm contacts the individuals to share with them a blurb about the opportunity, and to find out if they’d be interested in talking with your company. That then adds hours to your project, but it will give you a cleaner list of candidates rather than just a list of names. You then can take it a step further, and have them help you with the interview process, or you can take the list and have your company take on the process from there. Again, this is all at an hourly rate, so you can control the costs based on how much work you choose to have the firm do on your behalf.
2. A Contingent Search Firm
A contingent search firm recruits for your role and gets paid only if you hire their candidate. Contingent firms usually charge 15-25% of the annual compensation of the role, along with a small non-refundable retainer upfront that gets applied to the total fee. (The changeable/varying cost is due to the volume of recruitment you’ll give to that firm in a year, and the level of the role being recruited – e.g. a Manager vs. a VP, given that a Manager would be less expensive to hire than a VP). Contingent firms work well if you don’t want to commit to one firm, but instead use a few. This is why there is a retainer fee, as firms don’t want to put all their energy into helping you fill a role that you have asked two other firms to fill as well.
3. A Retained Search
This can be seen as an exclusive partnership to fill an open role. This means you have only one firm working on the open position. For a Manager or Director role, the fee would be 15-25% of the role’s annual compensation (the figure can be negotiated if you are guaranteeing other searches to the firm) and for a VP or above, it is 25-33.3%. With a retained search firm, you pay one-third of the fee up front, the second third after thirty days, and the third and final payment when the position has been filled.
Note: You pay whether or not the role gets filled! So if you think that you might have an internal candidate whom you’re going to promote, don’t sign on with a retained search firm!
When signing an agreement with you, recruiting firms agree not to recruit your employees for other jobs, which is great — but it also means they have a list of companies from which they can’t recruit. Therefore, be sure to ask about their “no-call” list, as you don’t want to retain them only to find out they can’t call on candidates at companies in which you’d be interested.
Recruiting 101: Final Thoughts
Aside from knowing the three different types of recruiters, it’s also important to work with someone who specializes in the area for which you are hiring. Thus, if you are indeed seeking a VP of Digital Marketing, ensure the recruiting firm has done numerous searches and that they know all the players in the market. That’s what you’re paying for: their relationships and connections.
Sometimes these jobs can be filled very quickly; however, depending upon your company, the location, and the market conditions, it can take some time. To speed up the process, ensure you give the recruiter great marketing material and a lot of information to help sell your company and the open slot. After all, some of the candidates may not be looking for a job, so they’ll need good reason to consider what you’re offering before they’ll agree to update their resumé for you.
Last but not least, make sure you clearly communicate your expectations on the process with the recruiter and give feedback along the way. It’s a two-way partnership, and the recruiter can only be as successful as the employer will allow!