Recruitment Agency Fees
The recruitment industry is well known for being highly competitive
, there are so many agencies ranging from large multi sector high street agencies to sole traders, often working from home. But regardless of size, these recruitment agencies are still providing the same or similar services and often competing for the same business. Therefore the fees charged by agencies need to be competitive and reflect the services they are providing. Recruitment agencies do provide different services such as supplying temporary or contract staff, retained head hunting assignments, managed services and the placing of permanent candidates, this article will look at the fees charged for permanent placements.
When setting pricing strategies for any product or service, it is important to consider what you can afford to charge, what your break-even point is and how much profit can be made. The usual way for a recruitment agency to calculate fees for permanent placements is as a percentage of the annual salary for the vacancy (typically around 12-25% depending on the job role, but can be lower or higher) so when forecasting it is essential to know the sector and the types of vacancies you will be recruiting for and what are typical salaries. Many recruitment agencies will have a sliding scale of fees reflecting the salary for the vacancy, also the work likely to be required for sourcing, identifying and selecting suitable candidates and the value of the service and of hiring the best candidate for the employer. For example, although a fee of 15% of an Administrator's salary will be far less than 15% of a Senior Manager's salary the amount work required, costs of advertising, the consultant's time spent on advertising, pre-screening, interviewing etc. will probably be nowhere near.
Rebates are often included in many agencies terms should the candidate leaves the job or not be suitable. Typically, for up to 12 weeks after the candidate has commenced employment, should the candidate leave a free replacement can be offered or a rebate is paid on a sliding scale. This is where the recruitment consultants negotiation skills can be essential. Although having set fees is important, agencies must be willing to be flexible to vary fees when needed. Clients will often look to negotiate fees; particularly those with a high spend on recruitment and who will have a high number of vacancies they regularly recruit for.
A pricing strategy should also reflect the market and be in line with what your competitors are charging, fees will often vary depending on the sector and location. For a new start up with low overheads looking to get a foot into a competitive market the temptation can be to under cut the competition. This is a strategy destined to fail, even if this does work in the short term, what happens when the agency grows and overheads increase, will the clients be prepared to pay the higher fees? Recruitment agencies are providing professional business services to their clients, the last thing they should want to do is appear as a low cost, value alternative and many clients are suspicious of a new agency offering very low rates. The focus must always be on the services provided, the value to the client and how this is reflected in the fees.
by: John Smith
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