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Are you choosing the right type of recruiting agency?
“People are your most important asset.”
We hear this adage all the time – but does every type of recruiting agency treat people as an invaluable asset?
Recruiting has the power to make or break a business…by recruiting the right people for the right roles, you can supercharge your business with motivated, inspired employees.
On the flip side, if we recruit poorly, we’re sabotaging the business and causing lasting damage to our organization and our profits.
The type of recruiting agency you choose will dramatically influence the results of your recruiting, and by extension, the health of your business. As such, business owners must carefully consider their options when looking for an outside firm to help with talent acquisition.
Let’s look at a few of the most common types of recruiting agencies, as well as the pros and cons of each.
1st Type of Recruiting Agency: Contingent
The most common type of recruiting agency is the contingent agency. These firms typically charge a percentage of the hire’s first-year income, paid out when they successfully make a placement. The cost-per-hire with a contingency firm hovers around 20-25%.
The problem with these types of recruiting agencies is that the commission often negatively influences the process.
While the best candidate submittals and placements can take some time, contingency firms will submit a lot of candidates as quickly as possible to increase their odds of making a placement.
The longer it takes to make a placement, the more money the contingency firm loses. As a result, they are financially incentivized to prioritize fast placements rather than quality.
Other types of recruiting agencies will make fewer submissions but place much more emphasis on finding quality candidates that fit the client’s needs in the first round.
Contingency firms can be a decent solution for high-volume staffing or filling unskilled positions. However, when quality of hire is important, be advised to look at other types of recruiting agencies.
Pros
- Only pay when you get hires
- Recruiters are incentivized to make hires quickly
Cons
- Quality of hire takes a backseat to time-to-fill
- Little incentive to make sure a hire will stay with the organization and excel long-term
2nd Type of Recruiting Agency: Retained Search
The second most common type of recruiting agency is the retained search agency. In comparison to contingent firms, these agencies charge a start-up fee to initiate the search as well as another fee when the company makes a placement.
Oftentimes, a final fee is paid when the hire has stayed with the company for some amount of time such as 90 days.
The fee is most often a percentage of the hire’s first-year income and is typically 30-33%. Due to the additional expense, this type of recruiting agency is most often used for executives and other high-level positions.
Retained search firms generally offer much better quality than contingency firms. Unfortunately, this type of agency is also prohibitively expensive. Many companies can only afford their services for the most critical positions.
Furthermore, retained search firms often use restrictive, onerous contracts that lock you in for months at a time.
If you are unhappy with their services halfway through this period, you may be stuck or forced to pay a hefty sum to break the contract. On the upside, you are guaranteed to get a hire.
Pros
- More focus on quality of hire
- You don’t have to pay the entire fee until you’ve made a hire and they’ve stayed with the company for x amount of time
Cons
- Expensive
- You may pay a hefty start-up fee before you’ve received anything of value
3rd Type of Recruiting Firm: Hourly
More and more companies are pivoting away from the traditional agencies to an hourly model. This type of recruiting agency charges a company solely for their time spent on a placement.
Now, every hourly firm is different, but at Qualigence, we don’t charge any start-up fees, require minimums, or place any other restrictions on the service. Companies can use our hourly recruiting services for as long as they see fit and find value in the service.
Since we rebuilt the recruiting process from the ground-up, we don’t consider ourselves a recruiting agency even though we offer talent acquisition services.
The hourly model offers several benefits. First and foremost, the influence of commissions on recruiters is eliminated. Without the pressure to make a placement to pad their income and satisfy management, recruiters can focus on quality above all else.
Furthermore, the hourly empowers recruiters to be completely transparent with candidates and clients alike.
Contingent recruiters often withhold pertinent information from both sides. On the client-side, they may stay tight-lipped on red flags or concerns about a candidate. After all, the sooner they make a placement, the sooner they get paid.
On the candidate side, they may not tell the candidate the name of the company out of fear that they will lose their “finder’s fee.” The drawback of this type of recruiting agency is a non-issue with hourly firms.
Hourly recruiting is also highly cost-effective. At Qualigence, our annual cost-per-hire hovers around 13% and typically does not exceed 18%. That’s a far cry from the 20-33% charged by contingent and retained search firms.
Hourly pushes us to re-earn our client’s business on a daily basis. Since clients can stop using our services at any time, we must consistently deliver value to stay profitable.
Pros
- Emphasis on quality of hire
- Financial incentive for recruiters to re-earn your business on a regular basis
- Cost-effective with average annual CPH of 13%
- Pay-as-you-go contracts that are flexible and low-commitment
Cons
- Not as cost-effective for high-volume or low-skilled staffing
- Must pay before you get a hire
Choose a Recruiting Firm That Empowers Your Business
Recruiting is about more than filling seats or expanding your team. It’s about finding the people for your business that will truly drive next-level success.
It’s about recruiting the right people – the ones that will go above and beyond and make your organization great. As stated previously, recruiting can make or break a business.
Businesses should choose a recruiting firm that goes beyond filling seats and focuses on empowering clients with high-quality hires. Is that how your recruiters are operating?
Click here to set-up a free talent consultation with one of our experts.