Staffing Agency Fees: Why are bill rates and direct hire fees so high?
When it comes to working with a staffing agency, it's all about finding a partner that will align with your talent strategy initiatives. Like most staffing firms these days, we work on a “contingency” pricing model.
It's pretty straight forward: we only get paid if we find the right person for the job. It keeps us motivated to not just send you anyone, but the perfect match.
Contingency is more common than the legacy “retained'' pricing model, that Candidly, favored the staffing firm (i.e., it’s an upfront retainer to initiate the search). Truthfully, whether you’re hiring a Customer Service Representative or your next Global CFO, there are limited scenarios where I would suggest a talent leader use a Retained Search Firm in this environment.?
Why Contingency Pricing Makes Sense
As a talent partner, we invest significant resources and effort upfront, including role definition, sourcing and recruitment, evaluation and assessment tools, screening, liaison interviews and offer, reference and background checks, drug screens … and the list goes on.? This is all free of charge until we find the right-fit candidate who starts working for you. It’s a bit risky on our end, but it’s how we show you we’re serious about getting it right.
Let’s Talk Costs
I will tell you, anything more than a 25% contingency fee for a direct hire placement is excessive?. Twenty-five percent is generally the industry standard, and it strikes a good balance for a single direct hire placement.?It covers our efforts and ensures you’re not overpaying –?especially for those super important roles in fields like finance, insurance and healthcare. These mission-critical roles are difficult to place and often have a higher cost associated with them.?
But it’s all about keeping things reasonable, right?? At Networks Connect, we often negotiate down even further when we are gifted with a strong partnership that becomes a larger part of your talent strategy.
As for temp-to-hire, the same total cost should apply.? Meaning the margin between pay rate and bill rate minus employment burden will get you your hourly margin (Bill Rate – (Pay Rate x1.20) = Hourly Margin), and this number multiplied by the term of contract should equal the same amount as a direct hire fee (Hourly Margin x Term = Same as Direct Hire Fee). To illustrate, here’s a sample scenario that compares the different approaches to pricing.?
A Few Tips for You to consider
As you evaluate your talent strategy and partnerships, there’s a handful of things to keep in mind, including:?
1.??? ALWAYS require transparency around the pay rate of a temp-to-hire employee.? If your internal pay rate for a Customer Service Representative is $20/hr, but the staffing agency is paying them $22/hr on contract, that employee likely will not convert to full-time with you at the end of the contract.?
2.??? NEVER pay a conversion fee at the end of a term temp-to-hire. The money is being made during the contract period.? Do not let a staffing agency tack-on an additional $1,000 or $2,000.? When a firm adds this to the initial Staffing Agreement they send you, make this the first point of negotiation.? I promise you they will remove it with zero push back. Once that occurs, ask yourself if this is the firm with whom you really want to work.
3.??? Temp-to-hire is meant to be an impactful “try before you buy” talent strategy, not a rental.? Once in partnership, routinely evaluate your temp-to-hire conversion rates.? At Networks Connect, we of course want to have as many employees on assignment as possible. This is how we make money.? However, we recognize it is important for our partners to see a positive impact and reduction in budget from working with us. Today, we do not have a single client utilizing these services that has not seen a reduction in required temp-to-hire resources.
A Call for Transparency
When choosing a staffing partner, look for transparency in pricing models and a clear explanation of the costs involved.? As someone leading the charge in talent acquisition and/or hiring, you’re shaping your company’s future. So, you want to team up with an agency that’s upfront about what they charge and why.?
A good partnership is built on trust and aiming for wins on both sides. You truly get what you pay for today, and a good partnership should reduce these sorts of expenses in the future. Go for an agency that’s ready to share the risk and the rewards. That way, you’re sure to attract and keep the best people and really make a lasting impact.
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#TalentStrategy #RecruitingInsights #StaffingIndustry #TalentAcquisition
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Chris is President and Founder of Networks Connect, a leading staffing firm dedicated to the healthcare and professional sectors. His passion to connect impactful individuals, enhancing careers and benefiting companies has reached thousands of candidates and hundreds of talent leaders. With a transparent approach, Chris is committed to sharing industry insights, tips, and trends to help peers achieve their workforce goals.
Managing Director of Sales, Operations, Executive Search & Employee Development
6 个月I cannot disagree more with the contending ideas of this article. There is a big difference between a staffing agency and an executive search firm. It's very important that clients/buyers know the differentiators. No one person or firm should ever set the standard for search fees (industry "price-fixing" is a no-no, refer to the ASA). Contracting is running a "perm search" through a temp division. You can only hire unemployed people and that is a shallow pool if unemployment is low. Plus, what is really needed is a committed direct hire candidate with some skin in the game. When a person is leaving a job for another, she is typically giving up tenure, benefits, vacation time, etc. Temporary hiring serves one purpose, while perm or direct hire, or leveling up to executive search serves other purposes. Never accept one firm's opinion on what are excessive fees. What is true for one, is not true for all. Bill rates and fees are not too high, especially when you calculate the cost of having a staff vacancy---just the stress on those picking up the slack could cause further turnover. For further discussion on this topic, please contact me.
Senior Accounting and Operations Specialist Specializing in Accounts Payable & Receivable | Driving Financial Excellence and Process Optimization
6 个月This perfectly explains how contingency pricing in staffing ensures that both the client and agency are in an equal partnership. I also think its great to advise clients to seek transparency and negotiate terms to avoid excessive fees when seeking out a staffing partner!