Today I’m exposing the dirty secrets of the recruiting industry and people are going to be upset. So if I go missing in the next week you all know why!
It all started after selling my technology staffing company in 2016. I took a huge step back to reflect on my work over the past ten years. The recruiting industry, although a tough business, has been very good to me. At the same time, there were a lot of things that didn’t make a lot of sense to me. One of those things was the pricing model. If you know the industry at all, you know that the standard pricing model is 20% of the candidate’s first-year salary, including bonus. As the economy continues to stay strong, salaries continue to rise. Many mid-level employees are making between $80k – $120k with some even reaching the $150k mark. That makes staffing fees range between $16k-$24k with some fees approaching or even exceeding $30k. For one resume! One! In most cases, the value is just not there. While the recruiter is providing value by taking a task off the plate of the client, the actual cost for providing the services does not vary significantly between a candidate that makes $80k and one that makes $150k. So why the price hike? The answer is simple. Because the recruiter can, and you let him.
From the client’s perspective, there are two fundamental problems with the ‘percentage of salary’ fee model. Here’s the part where I explain what they are. I hope you’re sitting down.
Problem #1. Candidates with higher salaries shouldn’t cost more.
I touched on it earlier, but when you hire a guy with a high salary, it takes an identical amount of time to call resumes and qualify a candidate regardless of salary. Actually, in some cases, or in most cases, the higher salary candidates are easier to find and easier to attract. Let me explain. A higher caliber guy demands a bigger salary, right? Yes, they do. In most cases they deserve it. These higher caliber professionals answer the phone more readily, give a ‘call back’ more frequently, and are typically later in their career and thus explore the most decent opportunities in an effort to maximize the time they have left in their working years. So if the pricing model were logical, the higher-level roles that don’t require a ton of headhunting should cost less, not more. But no matter how you slice it, job advertisements and a recruiter’s hourly wage do not fluctuate based on candidate salary, so neither should the fee your recruiter charges you. Make sense?
Problem #2. By paying a percentage of salary your recruiter is incentivized to work against you.
You know when something is wrong and you have absolutely no way to prove it? Well, every day across America recruiters are overcharging their clients in order to get their fees increased. I think its absolutely awful to overcharge the very people who hired you in an effort to make a couple more bucks. It is standard practice and has far-reaching and damaging effects. Again, let me explain. Let’s take the example of a $100k project manager you’ve hired from your recruiter. Well right off the bat you told the recruiter you’d pay up to $120k for the candidate. So guess what he says the salary is for the candidate? Yep. 120k. So right there this awful model costs the client an additional $20k, year 1. The payroll tax went up $4k, year one. The staffing fee went up $4k, year 1. The total cost to hire that Project Manager year one is $168k (salary, taxes, recruiter fees) before benefits. Years two and three that mistake cost you an extra $88k ($44k each year). The total cost on that three-year mistake is well over $100,000. That is a tough pill to swallow.
As many of you know, working with a commissioned recruiter is akin to hiring a used car dealer to find you, candidates. Furthermore, if you know anything about the car industry, Carmax has done a pretty good job at cleaning up the business. They have achieved this by changing many things about the car industry’s standard practices. The key thing they did was change the way salespeople were paid. They started paying the salespeople a flat rate and took away the sales person’s incentive to sell you a car you didn’t need. A salesperson at Carmax will literally tell you that he doesn’t care how much you spend, he just wants you to get the best car for you. We believe recruiting should be the same way.
You’re probably asking yourself why this is the first time you are hearing this information? The answer is simple. Because the only people that would have the knowledge to tell you this are probably the ones screwing you. I know this all seems ‘doom and gloom’ but there is hope. An all-inclusive, flat-rate solution positions the recruiter solely in your corner. He is incentivized to get you the right person, the first time at the best salary.
Before telling the recruiter that he or she may begin your candidate search, ask them to give you a flat-rate price for their services. If they don’t agree, and they most likely won’t because they know all of the above, then you should just call Hire10. Our average client saves over $3MM every three years on hiring, they getter better people validated by science and we guarantee them for a minimum of one year.
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