You want to get big recruitment fees, but how do you best charge clients to get the maximum possible fees? You have multiple options for billing your clients. The recruitment agency fee structure you choose depends on the situation and your goals.
Recruitment agency fee structure types
Below are the ways you can structure your recruitment fees. Make sure you read them all to determine which is right for your situation.
Percentage-based fees
Recruiting agencies typically calculate fees based on a percentage of the new hire’s first-year wages.
The following situations commonly use percentage-based fees.
Retainer placements
When you receive a retained search assignment, you take on a type of exclusive search. The client pays you a retainer fee up front to keep your services. This retainer fee is typically a percentage of what the employee’s first-year salary will be.
The client will pay you two or three more times during the search process. The client should pay you when a hire is made. Sometimes, the client makes a third payment when you provide them with a shortlist, or at another significant point in the recruiting process. Each payment is normally a percentage of the first-year salary.
Let’s say you’re filling a position with a first-year salary of $75,000. Your client agrees to your contract that says 5% of the first-year salary is due up front as a retainer, 10% is due when you present a shortlist, and 10% is due when a hire is made. Your client will owe you $3,750 at the beginning, $7,500 when you give the shortlist, and $7,500 when the candidate is hired. In total, the client would owe you 25% of the first-year salary, or $18,750.
The total fee percentage you receive with a retained search assignment is typically greater than the fee percentage you’d receive with a contingency agreement. This is because retained searches often take longer, increasing the total rates.
Contingency placements
Whether you have an exclusive or non-exclusive contingency search agreement, the client doesn’t pay you until someone is hired. No matter how much work you do, you don’t get paid until a placement is made.
With contingency search assignments, the fee is typically a percentage of the employee’s first-year salary.
For example, you agree to a contingent search agreement for a $40,000 position with an 18% fee. Assuming you fill the position, you would earn $7,200 when the candidate is hired.
As mentioned in the retainer section, contingency search fees are typically lower than retained search fees because the search process is normally shorter.
Contract placements
When you do contract staffing, you handle payroll and all employment tasks on behalf of your client. You bill your client for the employee’s wages, plus extra to cover the cost of your services.
To calculate contract bill rates, multiply the employee’s hourly rate by a markup multiplier. For example, an employee earns $15 per hour and your markup multiplier is 1.6.
$15 X 1.6 = $24
In this example, you would bill your client $24 per hour the employee works.
Temp-to-perm fees
If the client wants to hire the contract employee permanently, then the client will owe you a temp-to-perm conversion fee. There are two common scenarios for the conversion fee.
You can do a prorated temp-to-perm fee. You take the percentage of the first-year wages that you would normally earn and prorate the fee based on how long the temporary employee has already worked. For example, you charge 25% of the employee’s first-year wages. But, the employee has worked for two months. You would invoice the client for 10/12ths of the 25% fee to cover the remaining 10 months of the year.
Your other option is to credit the placement fee based on the hours the contract employee has worked so far. For example, you charge the same 25% fee again. But in this scenario, you credit the fee $5 per hour worked under contract.
Beyond percentages
While it’s common to charge clients based on first-year wages, it’s not your only option. There are other recruitment agency fee structures. In some cases, it might be best to use another pricing option.
Flat fees
Flat fees aren’t as common as percentage fees, but they do exist and they do have a place.
Flat fee recruiting isn’t used often because flat fees are typically lower than percentage-based fees. But, taking a lower flat fee can help you negotiate other parts of your recruiting contract.
A flat rate might help you secure multiple job orders with a client. They might be willing to give you more jobs if you give them a reduced price through a flat rate.
You can use the flat fee to negotiate a recruiter exclusivity agreement. For example, you might agree to use a lower flat fee instead of a higher percentage fee if the client agrees not to offer the job order to anyone else. A smaller, guaranteed flat fee is better than getting no fee if you don’t present the winning candidate.
You might also use a flat fee when there’s easy money sitting at your feet. If you know you can easily make a placement in little time, you can offer a flat fee to outbid other recruiters and secure the job.
Rates for a period
You can also charge an hourly, daily, or weekly rate. This is even less common than charging a flat rate. But, by charging a rate for a certain period, you are compensated for the time you spend on an opening. You can bill for consultations, phones screens, follow-ups, sourcing, pre-qualifying, and more.
If you do charge a rate for a certain period, you may consider charging a large rate to make up for the fact that you won’t receive a big payment when the candidate is placed.
