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The Real Cost of Using A Recruitment Agency

The Real Cost of Using A Recruitment Agency

“Company X saved itself $1m in recruitment fees last year by buying its HR team a new whizz bang, techno gadget thing !”

Another day, another article or comment BTL, (surprisingly almost always from someone who stands to gain from this switch), about the cost of using an agency versus doing it yourself.  They will wax lyrical and completely objectively of course, about the virtues of in-house recruiters using new technology, employee referrals, social media strategies and campaigns, employee engagement programmes, even the humble old cheap as chips job board if necessary. Anything at all other than using an “expensive and old fashioned recruitment agency”.

Then they will then outline how this month’s new ATS or the next “this really will change the way we recruit” model , guarantees a constant stream of scrubbed and groomed top recruits to the employer’s door, merely at the click of a button.

Biased recruiters (like me) will always argue against this in the usual way ……………

“It is hugely simplistic to compare the naked cost of a recruitment fee against a supposedly lower (but usually hidden and ongoing) cost of an in-house recruitment operation OR

 

“You are not going to get the best candidate in the market, just the best one on the market”…………

 

I’ll leave it there as we all know this speech verbatim I am sure. All of that is of course true but is the subject for a different blog perhaps.

But how about if we look at this in a very different way entirely ? I am going to borrow from the Freakonomics school of thought and try and think a bit more laterally about what seems a very straightforward proposition.

If the vast majority of recruiters work on a contingent basis – no placement, no  fee – then they will inevitably spend a large part of their work time earning no money at all.

Of course when they make a placement , they make a fee and it is usually a big enough fee to offset all the work that is done free of charge on other non-placements. Now as a recruiter I (and those readers who are also recruiters) are used to that offset and accept it as the nature of the game. Sure it niggles on occasion, yes we cast covetous glances at other professions and models* and wonder. More often than not we simply shrug it off and move on.

 *Of course there are retained recruiters out there but they are far fewer in number than the contingents and in some sectors – including mine – would be bordering on non-existent.

But I think we are missing a trick here in terms of how we justify our service in these financially cautious times. Recruiters actually provide huge value to an employer many, many times over a year, irrespective of how many placements are actually secured. And I am not even talking about the extra services we normally highlight – market intelligence, salary guidance, generic candidate feedback on that company etc etc . There is something much more valuable that we provide multiple times throughout a year but to my (and perhaps your) shame, do we really make our clients aware of what they get from us ?   

Let me construct an example that shows what I mean ……..

In January one year , XXX Media Company briefs Blade Recruitment to find them a great media sales person. I work through my network and am quickly able to source and select 10 possible candidates. I then narrow the 10 down to let’s say 3 candidates that I short list for interview. The 3 all have first interviews and 2 make it through to the final interview. XXX wants me to reference check and pre-negotiate the package with both candidates and based on those discussions, they then make an offer to one of my candidates. I then put the offer to the candidate, handle the final negotiations around the package and ultimately secure a signed agreement to the offer. One new recruit duly secured.

Let’s say the agreed recruitment fee for the role is $10k. XXX Media Company pays me and everyone is happy.

OK now let’s say the same media company calls me up later that year in July and says they have another job to brief me on. I repeat the above process ….” I work through my network and am quickly able to source, reference check and select 10 possible candidates…………………..etc etc “

The only difference is now that at the final stage, XXX Media Company thanks me for finding 2 cracking candidates that they would be delighted to hire but they are going to go with another option, someone they sourced elsewhere for ‘free’, or perhaps a promising internal applicant looking to step up. They liked this other candidate from the start and were open to hiring them but were not sure how he/she measured up against the rest of the available candidates in the market.  Now thanks to my work, they are sure and are going to hire them instead of my superbly sourced candidates. Regretfully, I will have to warm my tumbledown hovel with nothing more than their kind words !

Any recruiter of any longevity will have had this discussion countless times. In short, whether it is declared or not at the outset, the employer has ‘used’ you to bench mark a candidate they probably had pegged right from the start, or very early in the process.

Now I stress there is absolutely nothing wrong with what the employer has done and again in many ways, it is just the nature of the contingent recruitment game. BUT the end result is that I the recruiter have done exactly the same quantity and quality of work as I did last time but this time I will receive zero dollars.

So far, so straight forward.

However, I would argue that XXX Media Company has just received (for free) $10k worth of service that has considerable value to them, in that it allowed them to assess whether they had indeed found the best candidate in the market.

So how much has XXX Media Company’s willingness to use Blade Recruitment cost them in that business year ? Logically we would all say $10,000 as that was the fee they paid for the placement in January. However if we can agree that I provided exactly the same quality and quantity of service – and I did – in July’s non-placement situation, then Blade gave XXX Media Company $10,000 worth of service for zero cost .

So the total cost for XXX Media Company in doing business with Blade over that year is the $10,000 fee they paid me in January,  minus the $10,000 service I gave to them in July ie we are all square !

It cost them nothing, nada, zip.  For the humungous amount of zero dollars, I secured them one great candidate myself and enabled them to confidently secure another great candidate of their own.

No ATS or even an in-house recruiter (and Lord knows they can add significantly to a company’s bottom line as well) can do all that I did in July and let’s be honest, if we are talking real world scenario, I probably also did it in March, May, September and December as well !

Not so expensive now are we. 

Now I am not dumb or naive enough to think that your average Finance Director is going to agree that I have created a new and revolutionary method of book-keeping and insist that all hiring is sourced through third party agencies, regardless of the cost. But I do think it is an interesting way of looking at the cost-benefit question anew.

2 thoughts on “The Real Cost of Using A Recruitment Agency

  1. ross clennett

    Very well said, Mark and entirely accurately. I assume those clients bemoaning the ‘cost’ a recruitment agency fee are also those happy to pay a service fee when they do exactly as you describe and not hire a candidate after an excellent agency service was provided? Ah, thought not.

    Reply
    1. Mark Hall-Smith Post author

      Thanks for commenting Ross. Inevitably there is a strong element of preaching to the converted on this topic but it strikes me as a (somewhat) interesting way for recruiters to present their value.

      Reply

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