Is There an Industry Standard for Recruitment Fee?

QUESTION: I have two questions. First, we are also looking to expand, but our geographic market feels small.  In your opinion, how many clients or market opportunities is a good ratio?

Second, My recruiters claim that 20% is the very top of what our clients are willing to pay on salary ranges from $70,000 to $120,000.  We are one of the biggest cities in the country.  Is it possible that this is industry specific?  – Peter, Chicago

ANSWER: Four hundred to six hundred companies with two to three hiring contacts in each is usually a good ratio for me.  I am not sure if that is your definition of market opportunities, but that is generally how I looked at it.  As one narrows down a desk, that usually gets smaller but if you are looking to expand I want to start there because you might find fifty or seventy-five of those companies you really cannot help or do not want to help.  Maybe they are sources, maybe they are too small, maybe some of them, when you did the research, are no longer really even viable.

Onto your next question, I am going to tell you right now, it is their belief.  It is not true.  It is a story.  Those companies that are paying 20% pay other recruiters that have really proven themselves more than 20%.

In 1999 and 2000, which was a tech bubble, everyone was paying 19% to 20%.  Twenty percent was the industry de facto standard.  I was getting 25% to 30% base salary.  With some companies we also got that percentage of base salary, sign on bonus, guaranteed draw, car allowance with some of those companies in the same companies that I know prior to us working with them were paying 15% to 20% to other companies with a lot of those, by the way, too with money up front.  As a matter of fact, in 2000, 97% of the $2,143,000, not to round the number off, was engaged.  It was a brutally competitive market from a standpoint of everybody was trying to get openings in technology.  The gift that it had was no one was getting the candidates.  We could not do that anymore in 2002 and 2003 because recruiters with a lot less skill could find pretty good talent because the market loosened up.

In a market like right now, part of your job as the leader and coach in your company is really developing your recruiters’ ability to do diagnostic skills, and the diagnostic work of uncovering what the ramifications are if that position remains open and what those other recruiters that agree to those fees, what their level of production is.

If your recruiters are hearing all the time that everything is great, which I am sure they are not, then maybe it is a fee issue.  I have just seen it, I have had clients, I have had recruiters in very competitive markets and we were always able to charge a premium because we invested a lot more time in developing fantastic questions, diagnostics, and uncovering what the issues in their company were.  The people that paid 20%

The typical question that you can give to your recruiters when they hear that is, “So when you go through the process of vetting recruiters, since you have all these people who have agreed to 20%, what happens, between the time you hang up the phone with that recruiter and the time you see your first candidates?”  Most of them do not know.

I do not want to say I make them look like an idiot.  I make them look foolish.  Most of them do not know, but I do not lead on to that.  I then talk about the responsibilities.  “So if it is an engineer, to develop this brand new product line, to be your customer satisfaction quality engineer, whatever it is, you are going to put that kind of responsibility on them and you do not even know what the process that your recruiters use to find and identify the talent is?  Do they just go into a database and look at the resumes they have available and submit those?  Because I know a lot of recruiters do that.  I used to do that at just 20%.  So the question you need to ask yourself, Mr. Client, Mr. Prospect, is do you want the best available candidate in the marketplace and if you do I can show you a process where we will identify that person, or do you want the best available candidate in your recruiters’ databases?  Bluntly, sometimes those are the same people.  Are you going to put a $2 million territory at risk on the difference bet three or four points on a search fee or even ten points on a search fee?”

Do not get me wrong, I hear it all the time where this is the industry standard. There is resistance, and in tech we did get a few clients to pay us 30%, 28%, 27%.  We got a lot of people that would only pay 20% to 25%.  There are different elements there, but that is still a 20% premium over what everyone said was the standard.