Qualifying Search Firms – Fees, Expenses, and Guarantees

In this series, we’ve been sharing how to select a search firm. Today, we’ll cover questions around search firm fees, expenses, and guarantees.

In this article, we’ll be focused on retained search, which includes the recruitment of passive candidates. For more clarity, please feel free to review our series on YouTube around the differences between retained and contingency firms.

The use of search firms can be an expensive addition to the cost of new hires. Therefore, if your company has many positions of the same type, it often makes sense to hire an internal or contract recruiter to reduce the cost per hire.

However, when the position is specialized, confidential, or when the market demand of a given skill set exceeds supply, the use of a search firm may be warranted.

In these cases, passive candidates (those already employed and/or not actively seeking work) must be contacted and attracted to the position.

Simply placing ads (or contacting a shortlist of internal referrals,) often won’t cut it for this.

Therefore, the question to ask in situations like this is ‘who is going to do the research and outreach?’

The answer could be an internal resource, external resource, or combination of both, but this decision must be made for a successful outcome when recruiting in high-demand roles.

Search firm fees often vary. Starting from about 10%, they can go up to a third of the placed candidate’s first-year compensation. Furthermore, some companies offer flat-fee arrangements, hourly rates, and other payment models.

Given the significance of the investment made, you might consider questions like:

  • Are the search firm’s fees fair for the service it commits to providing and the role(s) in question?
  • Does the search firm offer a clear fee arrangement in writing?
  • How long does a search firm typically work on a search and what happens if they are unable to locate an acceptable candidate?
  • Which expenses will be billed separately?
  • When are payments due?

While a search firm’s rates should be competitive, be wary of selecting a search firm based solely on the quoted rate alone. Always consider the other factors mentioned in this series.

By spending too much hiring a candidate, you lose money. But that’s all you lose. Furthermore, it is seldom possible to get the most by spending the least, so it’s best practice to be willing to spend more in pursuit of the best candidate(s). 

If the role you are recruiting for is an important position, it is better to invest a little more in the recruitment process than to risk not solving the issue you need to be solved by the hire you’ll be making. Additionally, a stellar candidate’s work productivity will far outperform the investment made in the new hire.

Moreover, in considering business with the least expensive search firm it might be wise to add a little to your investment to cover the risk you’re taking.

Finally, what happens if a new hire quits shortly after being hired?

Most search firms offer a replacement guarantee if a new hire quits within a specified period following their employment.

If you’d like some help with this, or to understand how you can overcome some of these issues, contact us.