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Making the Move to a Retained Business Model

QUESTION: I have had consistent success with several clients that historically have been contingent fee-based. The clients will interview nearly all the candidates I present, give me immediate and meaningful feedback, understand that time kills all deals, and work with me to avoid that happening and typically work with me as a partner in the process. I have made multiple placements with them and enjoy the relationship. In spite of my goal of having a 100% retained model, I am going to really have a percent of contingency fees and my work with all these clients are the ones that I would see as those that make up that percentage.  

Having said that, I very much want to go to an all retained model, if not sooner then by the middle of 2020. My question is, do you have some suggested formula as to how to accelerate that? I know that high-quality work, consistency, and absence of complacency are all good characteristics and I work very hard to never allow myself to compromise on any of that. However, any specifics you could provide to help me transition these clients without firing them would be very much appreciated. – Earl 

ANSWER: I do not know if you have to abandon all contingency. When I went mostly retained, I had a couple of clients that were exactly as you described, and 80% to 90% of the openings we took on contingency. That is the key, the percentage filled on contingency and I do not know what percentage you fill. If you are filling 80% to 90% of the openings, I would not rock the boat because then you are penalizing them for being a good client. 

If it is less than 60% or 70%, the way I would transition them is I would start in gratitude for all the work they have given me over the years. I am hesitant to do this with clients with higher percentages. If they work the right way and you are filling most of the openings, I probably would not transition them. If they are working and filling 50%, 60% or 70% or less, I would probably say 50% to 60% or less, I would have the following conversation with the hiring manager.

I would say, “Earl, you are a fantastic client. I want to thank you for all the business over the years. I want to take my game up to a higher level with you and I want to see if you are open to having that conversation.” I start off the conversation like this because whenever you change the terms and increase the fee, I think you have to find a way to add more value.

In your mind’s eye look at where you can raise your game with any of those clients. Maybe you invest more in research, go after a bigger list. Maybe you go after the list and are more thorough. Instead of going after it three or four times, you go up to six, seven, or eight times to go through the list.

Whatever that looks like, wherever you can spot more value for them, and say, “I want to raise my game to a higher level with you, Earl. Now, I do not need to change the fee. I am really happy with the fee we have agreed to. My new clients are paying more, but you are grandfathered into my older rate.”

Sidebar:  It is important to tell them that so that they feel special. We are the same way in our company. Some people have joined us seven years ago and never seen a fee increase, and our fees have gone up every year, but current clients do not get fee increases. I was the same way pretty much once I established myself with retained clients. The fee is not going to go up, but we want to invest. 

I would continue the conversation by saying: “Here are the areas where we are going to provide more value and how this is going to benefit you. Before this call, I ran some metrics on your account last year.  You gave us 10 openings and we made 6 placements with you. We successfully filled 60% of the openings. Here is what is happening that you are not aware of. I have to hedge on every opening a little bit because there is a 40% probability statistically that we are not going to fill it, and the openings that we do not fill slash the margins on the ones we do. What I want to propose to invest at a higher level on your searches, is again we keep the fee the same, and what I will do for you, with all our new clients we are asking $7,000, $8,000, or $10,000 (whatever your number is) upfront and then we credit it on the backend.  

What I will do for you, Mr. Client, I am not worried. You guys are a high integrity organization. I will do all this stuff that I am going to do to raise the bar. I will promise you X amount of candidates within X amount of days. If we do not make the placement, meaning you fill it internally, cancel it, or change the city, something like that, we will invoice you at the end of the search for $8,000 and that will be the research fee that gave you a portfolio of candidates to compare against the internal hire you made.

Can you see, Mr. Hiring Manager or Ms. Hiring manager, that there is tremendous value in having a portfolio of candidates, meaning a lot of times you are not going to be comfortable hiring somebody if it is the only person you have met, meaning your internal person. If I provide, two, three, or four, whatever number you are used to, candidates to give you a method of comparison, the $8,000 gives you (1) the value of you knowing you are hiring the best available person in the market, (2) I can go deeper and probably have more of a portfolio for you to draw from, and (3) if that person ever skips out, changes their mind, takes a counteroffer, you have got that strong portfolio to back you up.”

Usually, we did not have a problem when we transitioned some people after having this type of conversation. I had a couple really, really good clients that we filled most of the openings and I never transitioned them. I did tell them that I was transitioning my business and that they were going to continue to work contingency and I did not take contingency clients anymore, and the reason that I was not making them transition and I went through all the really good things about them, kind of putting them on notice not to rock the boat and play games, just in a friendly way to go, you are getting a really, really good deal and to keep them kind of honest, meaning I could switch it at any time.  

The risk you take is if you have that conversation is you have to be prepared for the possibility that they go, “No, we like it the way it is.” You need to be prepared for the worst-case scenario.  (1) They might feel like you do not appreciate them, even though you have said it multiple times.  (2) They might just go, you know what, you are right, but we are not going to agree to that.  Once you are batting a BATNA, what is your best alternative to no agreement?  Is it keeping it the same?  

Great question.  Thank you, Earl. 

Photo by Cytonn Photography on Unsplash

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