Ever wondered why recruitment agencies charge what they do? If so, this article will explain the factors that influence the fees charged.
Recruitment agencies play a vital role in the hiring process for many UK businesses. They offer a range of services, from sourcing applicants, to vetting the best candidates, to managing the entire recruitment process for their clients.
But the fees they charge can vary greatly, which can make it difficult to understand how they are calculated and what factors influence the amount clients pay.
So in this article, we’re going to explain why four types of recruitment agency – full service agencies, fixed price agencies, temp agencies (also known as staffing agencies), and executive headhunters – charge what they do.
Let’s start by looking at full service agencies…
Full service agencies
Agencies such as Anne Corder Recruitment typically charge their clients (businesses looking for new staff) a variable fee that is a percentage of the new recruit’s starting salary.
This percentage is usually between 10% and 30%, and because it is percentage based, obviously means the higher the candidate’s starting salary, the higher the fee paid to the agency.
However, the key thing to remember about full service agencies is that they work on a no-results no-fee ‘contingency’ basis which means they are only ever paid by a client if and when they put forward a candidate that is subsequently hired by them.
So in practical terms, an agency could invest time and effort (as well as the cost of advertising a role for a client), only for the client to hire a candidate put forward by another agency who would get paid the recruitment fee.
This is despite the fact that the work involved in sourcing the right candidate can often be considerable. It may involve creating the ideal job description after having spent time understanding the business’s culture and philosophy, advertising the role on a number of job boards, filtering a high number of applications, liaising with – and vetting – the best candidates, arranging interviews, and much more.
The costs of doing all these activities is reflected in the percentage fee a full service agency charges, but typically agencies will offer a discounted rate to a client if they are hired on an exclusive basis (meaning they are the only agency looking to fill the vacancy for the business) or if the client uses them to fill multiple roles at the same time or on an ongoing basis.
Fixed price agencies
As the name implies, fixed price agencies don’t charge a percentage of a candidate’s starting salary, but instead charge a set price for their services.
This is because their focus is usually on volume recruitment and the use of technology to generate applicants, as opposed to other types of agencies that take a more qualitative approach and manage the entire recruitment process for their clients, including being involved in candidate interviews and negotiating salaries if required.
Unlike other types of recruitment agencies, temp (or staffing) agencies typically pay the short-term staff they source for companies themselves.
They then reclaim these costs, plus their fee, from the client who has benefited from not having to register the short-term employees on their systems, saving them time, cost, and inconvenience.
Executive headhunters are known for usually charging clients a high percentage fee and sometimes an up-front cost too.
These charges reflect the fact that these agencies are tasked with finding senior level candidates with particular skills and experience who in most cases are not actively looking for a new position. So instead of advertising roles, headhunters carry out research to find suitable potential candidates nationally (or even internationally) and then reach out to them directly to see if they are interested in discussing the new position.
However, as many of these senior level candidates already hold well paid executive roles with other companies, it can take the agency several months – or in some cases, more than a year – to find a perfect candidate who is interested in the new role and willing to resign from their current position to take it up.
The agency’s fees reflect the length of this process and the work involved researching and having in-depth discussions with prospective candidates, as well as carrying out a thorough vetting process that may involve personality and psychometric testing when requested by the client (although some full service agencies also offer this service).
To summarise, recruitment agencies charge the fees they do because of the time involved in providing the services they offer, the expertise required, and the costs they incur finding candidates for their clients.
Read the article ‘The top 10 tips when selecting a recruitment agency’ to find out how to choose the right recruitment agency for your business.