Many recruiting firms grimace at the thought of working for contingency fees in favor of working for the more predictable and exclusive retainer fee. However, many clients prefer to start off working with recruiting firms on a contingency basis, so not offering this payment method as an option may impede your ability to gain new clients. Additionally, working on contingency fees gives you the opportunity to prioritize the jobs and clients, on which you want to focus, and discover where your firm excels at making placements.
Regardless of whether you’re a fan or not, contingency fees are a reality of the recruiting world and the four tips below will help you manage and succeed at contingency-based recruiting.
1. Be Selective.
Contingency recruiting contracts are typically non-exclusive, meaning clients can work with as many recruiting firms as they want. Don’t accept contracts for positions that you know are going to be difficult or time-consuming to fill.
Pick and choose the contracts with the best positions and aggressively work them. Of course, you’ll have competition so you may not win every one. But clients will see you give 100 percent effort on contingency contracts, which can create loyalty and repeat business down the road. It also gives your recruiters the opportunity to practice sourcing and interviewing candidates quickly and efficiently.
2. Focus on one industry.
Stick to one industry that you know really well and focus on becoming the go-to firm for that industry. Build a talent community, get to know the influencers and closely follow industry trends to quickly grow a following and build relationships with top industry talent.
In general, a contingency-based firm will produce 3-4 qualified candidates. Increase your numbers to 6-8 candidates by understanding the specifics of the industry being able to spot a good fit easily. Working on contingency fees, your firm takes on the risk and expense of developing relationships with lots of candidates. Specializing in just one functional area can help you make better placements faster, which means faster fee collection and less opportunity for the competition to make the placement.
3. Create an engagement fee
An engagement fee agreement with a recruiter represents a middle ground. Engagement fees are part contingency because most of the payment comes at the end, but they are also part retainer which involves an upfront fee.
An engagement fee is usually anywhere from $3000 to one-third of the expected overall fee. It gives your client a better deal than a retainer would while also giving your company incentive to find the best placements. You would then collect the balance upon final job acceptance. This is ideal as the client has some skin in the game to work with you and you can cover your upfront expenses.
4. Combine your contingency relationship with a retainer.
Contracts don’t have to be 100% contingency based. Retainers, of course, can offer you the advantage of predictable revenue, but they can also be advantageous for your client, reducing their risk of getting deprioritized if they’re openings are not as easy to fill as other clients’.
Contingency fees are often calculated at 20% to 30% of the candidates salary for the first year of employment. This is different than the engagement fee because the percent paid up front is adjusted based on contingency rate and salary. Let the first month or two of your contract be based on retainer so you can provide quality candidates and then adjust the rest of the payment to be based on contingency. That gives your clients the comfort of knowing you are doing your best to find placements and gives them the opportunity to trust you in a long-term working relationship.
Ultimately, the way to be successful at contingency-based recruiting is to know your clients, your industry, your staff and your talent pool really well, which is really the key to success in recruiting regardless of how you’re getting paid.