Success Fee or Retainer? Models of cooperation with Recruitment Agency.
Success Fee or Retainer? Models of cooperation with Recruitment Agency – when will we pay for the service? It is an essential factor in choosing an agency. This is often the first and last question posed by a person calling about cooperation with a recruitment agency. Often even without getting to the question of price, let alone questions about who will carry out the recruitment process, how?
Success Fee or Retainer? It happens very often that when we pay for the recruitment service, it is the first and last question posed by a person calling about an agency recruitment offer. Often without even reaching the question of price, not to mention the questions of who and how the recruitment process will be carried out.
By asking this question, the client compares only one type of agency and usually only one way of providing recruitment services. So it sometimes happens that the client is not really aware that recruitment can be done better and more effectively if the model is well matched to the specific problem and recruitment need of the company. It is like walking down the same road constantly and expecting different views.
There are several models of cooperation with recruitment agencies on the market:
The success fee model.
It is the payment of 100% of the agency’s fee at the end of the recruitment process. This is a model that does not require prepayment to the agency. The client communicates, “please search and send me CVs; if I like someone, I will hire him and then pay”. This model encourages the agency’s very fast presentation of candidates because the agency wants to receive payment for the work done as soon as possible. Usually, the presentation speed of the candidate’s CV is a magnet for the client. In this model, the agency often finds the most responsive candidate and presents his CV to the Client.
The agency waits a shorter time for responses from less active, sometimes better candidates because “time is money”. This model often assumes that the project is carried out by a young consultant who has to efficiently send it to the client in the fastest possible time cv candidates.
It would seem like the perfect solution – no risk to the company.
“I’ll pay when I find a good person”. But are you sure? What if the project is difficult at some stage because the candidates, for example, do not want to accept the client’s offer, do not respond to the consultant’s contacts, or maybe they are not on LinkedIn? Will the agency that is paid for the hired candidate be able to persistently work on the project without considering its own liquidity? Or will the project be left in the pipeline in favour of another project that just came in and is easier and faster to close? Agencies have their own budgets and keep records of which project can be completed as soon as possible – they also calculate the risk. Consultants are accounted for “placements” in a given month.
This cooperation model often justifies the approach: “I haven’t received payment, so my commitment is time-limited”, or “if it works, it works”. There will, of course, be recruiters for whom this model fits very well (a large group of responsive candidates), and there will be those for whom it is not recommended.
Mixed model (semi-retainer)
The prepayment is usually around 10-40% of the project value, and the remaining amount is payable at the end of the project. Some people also call this model “success fee with prepayment”. Agencies have learned that to keep a person calling the agency to receive an offer for possible cooperation after the message “I’m interested only in companies working on success fee”, they have to confirm in the first words of the conversation that yes, they do work on a success fee. So they created the idea of “yes, we work on success fee…. but with prepayment”. This causes the person on the phone to dig deeper, and there is a chance for a more extended conversation. This model gives the agency more confidence that the client will not withdraw from the recruitment and allows them to work on the project more persistently.
The retainer model
It is usually divided into 3 (but you can also find solutions with 4) instalments. The remuneration is paid to the agency after completing the following stages: starting the recruitment process, presenting the candidates and closing the process.
Prepaid models are usually applied in more challenging projects, where the risk of a longer search is greater, where an experienced Consultant is needed or where we need to guarantee that the project will be closed within a specified time. Where we cannot risk frustrating the agency with difficulties in finding a suitable candidate profile.
The last two models of working with a recruitment agency tend to attract more experienced Consultants.
They are willing to undertake recruitment where their knowledge of many recruitment processes, sometimes business and industry knowledge, is helpful. Such Consultants are so credible in the marketplace that the Client is not afraid that the Consultant will not get the job done. Typically, these agencies also have a proven track record of Clients (attesting to the Consultants’ competencies) who believe that the risk of ending up with an unknown specialist is greater than the risk of paying a down payment. ” I prefer to check the professional’s work portfolio, set a precise work schedule, pay a down payment, and require compliance with every process step”.
The models of cooperation with instalments are also models in which, in case of complaints or subsequent orders, the Clients will usually go to the same specialist (usually Consultants work in such agencies for a long and stable time). These models also offer a more extended guarantee on the candidate than the success fee model. This is often due to a more thorough assessment of the candidate by the Consultant, who has assessed the candidate so well that he is not afraid of the risk that the candidate will not fit into the Client’s company.
And one more essential tip.
Even if the recruitment agency works on a prepaid or retainer model, it is always open to negotiating the fee amount. It may happen that the final price of services in the retainer or semi-retainer model will be lower than the agency’s price in the success fee model, where the risk that the project will not be closed on both sides is higher, so it is also priced higher. Often no one negotiates with the agency. The talks do not even reach the point of negotiating the price… the first and last question asked is, “do you work on success fee?”.
To check whether the agency’s price for a success fee is really lower than in the instalment models, it is worth asking the first question qualifying the agency for talks
- what does the recruitment process include
- ask about the price,
- put the question about the payment model in the last place
Asking about the content of the recruitment process is especially important because it allows you to compare similar products (services). It allows us to choose the elements we will pay for consciously.
Sometimes an element of the process will be so important that it will determine the choice of a company (e.g. test candidate in the first days of recruitment or weekly reports on the progress of the agency, the length of insurance that I will get in case of the wrong choice – a guarantee from the agency).
Let’s not forget that quality really matters; sometimes, it requires a little longer time and more experienced specialists. Therefore, during meetings with the agency, do not be afraid to thoroughly analyze the valuation of services or the stages of the recruitment process.
Each new cooperation or recruitment process is individual and needs its own way of choosing so that it will create its own history. Happy hunting and good choices
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