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The Revolt Against Recruiting Fees

Imagine a bunch of angry townsfolk armed with P&L statements surrounding the town recruiting firm office and shouting ‘No More Fees! No More Fees!’. The bewildered Account Manager, fresh off his or her Sales 101 training, peers out from the windows and frets ‘I was just doing my job’…

Several years ago, I worked at a recruiting firm where our standard pricing for a technical permanent placement was 25% of the first-year salary offer, with manager approval for anything close to 20%. Then we were strongly encouraged to ask for 30%, and some of us got signatures on agreements at that rate. After a few years that included a financial meltdown and recession – despite the market improving and companies using contractors at a thunderous clip – the ‘standard’ rate became 20%. Soon approvals for 15% became more of the rule than the exception. While many publications maintain the ‘industry average’ is 20%, more and more TA Managers/Directors/VPs – along with their Procurement counterparts – will not even entertain a vendor attempting to sell their wares for more than 15% perm hire fee.

The reasons for this phenomenon are two-fold. One is the very low barrier of entry to become a recruiting firm, and the other is the fact that companies have seen the astronomical costs of per hire fees and are revolting against it. Clearly, there must be another way!

First, there are over 25,000 registered recruiting firms in the US and most of them do not have office space, expensive technologies, marketing, or even many employees. The tools to get access to the communities in which people of certain skill sets congregate are not overly expensive for small businesses (LinkedIn, Clearancejobs, Dice, Github, Twitter). For permanent hires in exchange for fees, there are no employment costs or tax burdens to worry about, and someone with a good network could (and should) do it themselves.

Secondly, for the clients I’ve worked with in the last ten years, the review applied to 3rd party fees is a lagging data point, and rightly overshadowed by the success of good people in filled positions. In due time however, when costs of previous years are reviewed, it is a popular line item for most CFOs.

What most companies then do is swear off outside recruiting firms entirely and put more burden on their existing internal TA staff, hire more of them, or bring in a high-level HR/TA Fixer (usually with recruiting firm experience) to clean everything up. When this works, it is mainly because the problem was simply their own managers using whoever/whenever they wanted to find people, thus self-treatable. Most of the time, it does not work – as the outside spending being reduced does not equally translate into hires being made for critical positions, as they were before.

So, they begrudgingly realize, at times they do need outside help, but they will NEVER pay those fees again! And they shouldn’t.

Recruitment Process Outsourcing, or RPO for short, if implemented and applied properly, is the better way. At Davis Laine, we call this Davis Laine Solutions (DLS) – where a client gets a short-term adrenaline injection of their existing internal team for a flat monthly rate. Because the assigned RPO recruiter is already trained in effective methods and processes, and networks constantly in the skill sets the Client needs – their ability to find the right candidates is enhanced. And because the Client is paying the flat rate, their internal process is typically streamlined to interview and hire smoothly. Best of all, it can be ramped up or ramped down based on needs and business drivers throughout the year. It is a service charge to increase production of a required resource – like paying higher electric bills in the summer. It can (potentially) be predictable even, and therefore cost-controlled and budgeted.

The math is very clear as well. Even if a company is paying 15% and makes 3 outside hires in a quarter – that’s $45,000. An RPO Solution, like DLS, would have been 35% cheaper for those same hires, and probably would have filled more.

Going with an RPO solution takes some risk and trust level with the service provider certainly, a company does not want to just 'hope for the best' without doing their homework on the provider. But keep in mind that all those firms trying to charge even 15% are working for free, and against 24,999 other companies, and still manage to fill some of the openings. Most of that charge is a hedge against all the times they didn’t get a placement.

I believe having both parties put a little ‘skin in the game’ is the best solution for long-term partnership and finally solves the problem for good. Everyone put their pitchforks, torches, and financials away, we got what we wanted.

American Staffing Association, 2019 Staffing Industry Statistics ASA Quarterly Survey

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