How recruiters get paid and how they make money is not a simple issue. It’s dependent upon a number of different factors and extenuating circumstances.
Right off the bat, are we talking about internal recruiters or external recruiters?
Before we do that, let’s define internal vs. external recruitment.
External recruiters are also known as independent recruiters or agency recruiters. That means they work for themselves, they don’t work for one specific company. They work for a number of different organizations, helping to fill their open positions.
Internal recruiters are just what they sound like: they’re internal. They are an actual employee of a company. As such, they recruit exclusively for that organization and nobody else.
So why bring up that distinction? For one very big reason: typically, internal recruiters make less than external recruiters. That’s because internal recruiters almost always have a set salary. Their compensation has a cap on it. Not so for external recruiters. They’re more like commissioned sales people. There is virtually no limit to the amount of money they can make.
According to www.glassdoor.com, the national average salary for internal recruiters is $79,956. That’s why, for the purposes of this blog post, we’ll be talking about external recruiters (or agency recruiters)
How do recruiters make money?
There is one thing that internal recruiters and external recruiters have in common. That’s who pays them. In all placement situations, the company pays the recruiter, not the candidate. The only difference is that the internal recruiter is paid a yearly salary by a single organization. An external recruiter is paid much differently.
External recruiters do not receive a salary. (Although, as we will detail later, they might earn a base to offset their commission structure.) They receive what is called a recruitment fee or a placement fee. This can take the form of a check or an electronic transfer. Here are some different aspects of this fee:
- The company always pays the fee, not the candidate.
- External recruiters typically receive fees from multiple organizations. They refer to these organizations as their “clients” or “client companies.”
- The amount of each placement fee is different. That’s because it’s based upon the candidate’s first-year salary. That does not mean the company takes money from the candidate and gives it to the recruiter.
Here’s an illustration to explain that third point more clearly.
A recruiter works a search for an automation engineer. The salary for the position is $70,000. As per the agreement that the recruiter has with their client, they will be paid 20% of the candidate’s first-year salary. So . . . 20% of $70,000 is $14,000. Once the recruiter places that candidate, their client will send them $14,000. Not right away, though. It usually takes 30, 60, or 90 days.
As you can see, an external recruiter doesn’t have to make too many placements before they’ve caught up to the internal recruiter’s $79,956 salary.
How do recruiters get paid?
Now that we’ve discussed how external recruiters gets paid, let’s discuss the different ways in which they receive that payment. There are three such ways:
#1—Contingency
This means that the recruiter is not paid until the candidate is placed. To use the example listed above, the recruiter does not get their $14,000 until after the fact. Of course, the recruiter is competing against their client’s internal HR department. They might also be competing against other external recruiting agencies that are trying to fill the position. If the organization does not ultimately select one of the recruiter’s candidates, then the recruiter does not get paid.
That’s what it means to “work on contingency.” The recruiter is working in the hopes of placing a candidate and then getting paid.
#2—Retainer
This means the recruiter is paid up front, not after the fact. In other words, they get the money before they’ve ever started working. In this situation, the recruiter is not competing against anybody. That means, of course, that they’re giving the search their full attention. That’s because there’s no contingency involved. They know they’re getting their money. That’s because they already have it!
#3—Container
This is a hybrid of #1 and #2. The recruiter receives approximately half of the fee up front, before they’ve begun the search. Then they receive the rest of the fee after they place the candidate. The first half of the money is typically called an “engagement fee.” The client “engages” the recruiter and has their attention.
Giving somebody thousands of dollars usually gets their attention—and keeps it. In addition, retained searches are typically at a higher level, meaning that the fees are higher. So there’s that.
Which of the aforementioned ways recruiters get paid depends upon a lot of factors. One of those factors is the recruiter’s preference. Another is how the company likes to operate when dealing with recruitment firms. Yet another is the type of search being conducted.
There are countless business models, preferences, and types of searches. It all adds up to a diverse payment system for the recruiting industry as a whole.
How much do recruiters make?
So—how much do recruiters make in a single year? As we’ve already established, there is virtually no limit to how much an external recruiter can earn. (Well, there IS a limit, but there’s certainly no set cap, like a salary figure.)
Top Echelon’s recruiting network has been in operation since 1988. The average placement fee in TE NetworkTM is typically right around $20,000. (For giggles, the average fee percentage is approximately 22.5%.)
According to research conducted by Top Echelon, the average Network member makes between five and 10 split placements in TE each year. Remember, these are placements that they would not have made otherwise. Not only that, but they’re in addition to the non-split placements the recruiters are making.
Also keep in mind that in TE NetworkTM’s split placement scenario, Top Echelon receives 6% of the overall fee as its brokerage fee. After that, each recruiter involved splits the remainder of the fee, meaning that they receive 47% of the overall fee.
So, using this information, and the magic of mathematics, we have the following:
5 direct split placements x $20,000 = $100,000 x .47 = $47,000
10 direct split placements x $20,000 = $200,000 x .47 = $94,000
That’s $47K and $94K in split placement money earned through Top Echelon. According to additional research conducted by Top Echelon, the average Network member makes between 10 and 15 non-split placements during a calendar year. (Depending upon the industry and niche in which they work, of course.) Using more mathematics magic, we have the following:
10 direct non-split placements x $20,000 = $200,000
15 direct non-split placements x $20,000 = $300,000
Five direct split placements and 10 direct non-split placements in a calendar year would be worth $247,000. Ten direct split placements and 15 direct non-split placements would be work $394,000.
However, there is still something else that you must keep in mind. These are the numbers for agency owners who also “work a desk.” Since they’re the owner, they keep the entirety of the fee. However, what about agency recruiters who are not the owner?
Well, as you can imagine, they are NOT keeping the entirety of the fee. Instead, they are receiving a predetermined portion of it. The rest goes to the agency owner
(For more information, we invite you to read our blog post about setting up a recruiter commission structure.)
However, regardless of whether you’re an agency owner or a recruiter who works for an agency, you can earn hundreds of thousands of dollars per year. For the purposes of this blog post, let’s say that an agency owner who also “works a desk” makes 15 non-split placements in a single year with an average placement fee of $20,000. That’s $300K in billings for the whole year.
How recruiting agencies make money
We’ve looked at individual recruiters, but what about the recruiting agencies themselves? How much money do recruiting or staffing agencies make? As is the case with individual agency recruiters, the sky is pretty much the limit. There is no cap for individual recruiters, so there is also no cap for recruiting agencies.
However, this is where the agency owner can reap the most benefits. Let’s say, for example, that a recruiter owns his own agency. He’s the only one running the agency, a solo practitioner, if you will. That practitioner bills the $300,000 per year that we discussed above. The firm grows to the point where the owner hires other recruiters to work for them.
Let’s say the owner hires three other recruiters, and this is what they bill in the first year:
- Recruiter #1—$100,000
- Recruiter #2—$200,000
- Recruiter #3—$300,000
There is no college degree for being an executive recruiter. That’s why, when an agency owner hires a recruiter, they typically have to train the person on the finer points of the profession. Not only do they provide the new recruiter training on outreach practices and recruiting software, but they also give them access to their recruiting database and job orders.
In exchange for all of that, the agency owner takes a portion of each placement fee that the recruiter makes. That percentage varies from firm to firm. Not only that, but it can also depend upon a number of other factors. These factors include whether the agency owner is paying a base salary to their recruiters or not. For the sake or argument and this example, let’s say that the owner is NOT paying a base. This means that the recruiters are working on full commission. In exchange for not receiving a base salary, the recruiters get 50% of each placement fee they generate. The agency owner, of course, receives the other 50%. Let’s apply that percentage to the figures above.
- Recruiter #1—$100,000 x .50 = $50,000
- Recruiter #2—$200,000 x .50 = $100,000
- Recruiter #3—$300,000 x .50 = $150,000
So this is how to calculate what the agency owner brought in during that first year:
$300,000 (their billings) + $50,000 (recruiter #1) + $100,000 (recruiter #2) + $150,000 (recruiter #3) = $600,000
Two of the three new recruiters earned six-figure salaries. However, the agency owner increased the overall billings of their firm by 100% by hiring three recruiters. That’s how recruiting agencies make money and continue to make more money on a year-over-year basis.
2 additional ways that recruiters make money
For our example to this point, we’ve discussed full-fee, direct hire placements. However, recruiters often supplement their overall billings with recruitment fees derived from other placements. Two types of those placements are as follows:
#1—Split placements
Sometimes, a recruiter does not have the candidate they need to fill their client’s job order. Sometimes, a recruiter has a great candidate, but does not have a job order suitable for them. In such cases, that recruiter turns to a split fee recruiting network like Top Echelon’s. With a split network, that recruiter can conceivably find the candidate and/or job order that they’re seeking. That’s because it’s another recruiter’s candidate and/or job order.
In such a situation, if the two recruiters are able to make a placement happen, they split the fee. In the Top Echelon model mentioned above, each recruiter receives 47% of the final fee. Top Echelon receives a 6% brokerage fee, 3% from each recruiter. The money associated with these split placements is in addition to the money from the recruiter’s other full-fee, direct hire placements. Bonus cash!
(Don’t forget to apply for membership in Top Echelon’s recruiter network before you finish this blog post!)
#2—Contract placements
Many a direct hire recruiter also makes contract placements. These recruiters offer contract placement services to their clients, helping them to fill their temporary assignments. With contract placements, a recruiter does not receive their fee up front. They usually receive it on a weekly or bi-weekly basis, earning money for every hour the contractor works. Here’s a prime example:
Let’s say a recruiter places a software engineer at their client company for a 10-month assignment. During those 10 months, the recruiter earns $20,000 in placement fees. That’s a steady income of $2,000 per month. Everyone would sleep better knowing that kind of money was coming in each month, regardless of how many direct hire placements they made. (I know I would.) But let’s look at an even bigger picture.
Let’s say that a blended recruiting agency (one that offers contract staffing services and direct hire services) tries to keep at least ten (10) IT contractors working at a time, earning an average of $12 per hour on each contractor. See how this calculates into annual recruiter income:
- $12/hour x 10 active contractors = $120/hour
- $120/hour x 40 hours/week = $4,800
- $4,800 X 52 weeks = $249,600
So the agency owner in our hypothetical situation billed $300,000 by themselves; received another $300,000 from their three recruiters; and earned $249,600 in contract fees. That’s a total of $849,600. So close to billing a million dollars. Oh, well. Maybe next year!
How to make money in recruiting with your ATS
Being an external recruiter (and an external recruiting agency owner) can be a lucrative career. However, there is one big key to billing a lot and making a lot of money. You’ve got to know how to be a great recruiter. You must be good at sourcing candidates and then placing them.
You also must have the right applicant tracking system and recruiting software in place. If you’re looking to maximize the return on your investment of time and energy, be sure to choose the best ATS. Top Echelon’s applicant tracking software offers a robust set of reporting and tracking features that can keep you on top of your activity—and your agency’s activity overall.
With Activity Reports, you can optimize your team’s efforts by gaining insight into their activities during specific time frames. Then, once you have the correct data points, you can prioritize and optimize their efforts going forward.
But it doesn’t stop there! Top Echelon’s recruiting software also provides hiring and placement reports. These reports help users to review important hiring and placement metrics (once again during specified time frames). Then you can identify opportunities for improvement, both individually and overall as an agency. That way, you can fill more positions more quickly . . . and make more placements!
Recruiting software demo or free recruitment software
You can make money in recruiting with Top Echelon’s top-rated applicant tracking system and ATS software. That’s the good news. The better news is that you can request a recruiting software demo of Top Echelon’s system and/or get free recruitment software from Top Echelon for a period of 15 days. And we also invite you to check out our recruitment software pricing structure for more information!
Recruiting is a unique profession, but it’s not for everybody. It takes a rare individual to do what it takes to be a good search consultant. Unfortunately, some recruiters burn out and quit before they become great.
But that’s not YOU, is it? Of course not! You are destined for greatness. You’re destined to bill more and make a lot of money.
So go do it! Why are you still reading this blog post?
