It’s typical for the headhunting and recruitment industry that we are one of the first to notice the effects of the economic crisis. Recruitments go on hold, and suddenly no one is hiring anymore. On the positive side, we are also among the first to notice the change when companies become more active again and are relaunching the recruitments.
Needless to say, the number of recruitments has dropped, but by no means as much as one might have initially imagined. However, the crisis has pushed many recruiting and headhunting companies into a difficult position. This has reflected above all in two things: Prices have been pulled down, and the so-called Success Fee model has once again become widely popular.
Things you should know about the Success Fee
As the name already reveals, in the Success Fee model, the client company only pays a commission for the recruiter or headhunter when they actually hire an employee found through a recruitment or headhunting company. You often hear the phrase: “No cure, no pay.” This may sound like a great solution to some, although the reality is quite often something else.
I made this small table where I compare these two different models or approaches. The typical approach which is called “Retainer” and then this “Success Fee” model, which is also known as “Contingency Search”.
Needless to say, these are two completely different services. The Success Fee approach may work for lower-level jobs that attract a large number of applicants. Thus the company can save time by approaching multiple recruitment companies at the same time and asking each of them to send a few candidates they have ready in their databases. Another place where this may work is when the recruitment company specializes in some specific industry. Because of this, they have a deep pool of candidates for those particular positions.
However, I wouldn’t even think about the Success Fee approach in higher-level or more demanding expert-level positions. While the idea may sound exciting and “risk-free”, the reality is far from that. You might just be asking yourself, why would anyone work for you for free without any guarantee that you are even genuinely about to hire a new employee? Knowing also that there are probably a few other recruiters or headhunters doing the same search simultaneously. When no one is responsible for the recruitment outcome, their contribution is also equal, which is something between very little and zero effort. Some might spend a couple of hours going through existing candidates, sending a few CVs to the client, and moving on to the next assignment.
I would also like to highlight that sometimes or actually quite often headhunting or recruiting company is not the only to blame because in the Success Fee model also the client, aka. the company that is about to hire a new employee shows zero commitment to the recruiting process and the candidates. This only contributes to the fact that no one is genuinely interested in how the process ends.
In the Success Fee model, candidates can also get a somewhat questionable image of the company behind the recruitment when multiple recruiters can contact the same candidate simultaneously. In junior-level roles, this may still be somehow acceptable, but in senior-level roles by no means. Confidentiality and discretion are critical in recruitment. The recruiter or headhunter is the ambassador of your brand, so it is highly recommended to use one company. Only then you can be sure about your company’s image that is transmitted to the people in the process, above all, to those candidates who will not be selected for the position. Today, this world is a rather dangerous place for reputation, and bad candidate experiences are shared more often. A negative reputation is quickly circulating on social media, discussion boards, and pages such as Glassdoor.com.
However, the most significant difference between these two entirely different approaches is that you don’t get any guarantees of success in the other one. While in the Retainer model, the headhunter keeps searching for so long that the best candidates are found and placed in the process. The headhunter usually spends a significant amount of time searching, identifying, and attracting the best candidates. It can only be done when understanding the customer’s business really well. The task itself has been thoroughly gone through. The future operating environment, the team, the supervisor, the future challenges, and the future opportunities are very clear. Most important, however, is the fact that the client appreciates the professionalism of the headhunter and is willing to pay for it.
I will give a real-life example to strengthen the message here. One of the recent executive search projects I have been personally responsible for was for an American-based company that was planning to open the Spanish market after being successful in some other countries in Europe. Before the search, we spent a lot of time understanding their business. When their European operations Director arrived first time here in Madrid on Sunday night, I met him at his hotel and went to eat together to talk and plan the next couple of days.
We spent Monday morning together touring Madrid and visiting big department stores and electronics markets (El Corte Ingles, MediaMarkt, Carrefour, etc.) that would be their potential customers in Spain. I was now able to understand their business really profoundly, and at the same time, he saw and perceived Madrid and its surroundings better.
Monday afternoon and the whole Tuesday, we spent interviewing potential candidates. We had put together a very strong group of candidates, all of whom were entirely motivated for the job, and each of them could have been hired. Within a couple of weeks of that, the process was completed, and a new Business Development Manager was hired. Needless to say, the client was delighted with our service and rewarded us very quickly with another assignment, this time in the Czech Republic.
Lately, when a client has asked me about the Success Fee model and asked why we don’t offer it, I usually show the table you saw at the beginning of this article and I use the same example above how we conduct the cases. The discussion on the subject has ended quite fast every time.
Unfortunately, it is often imagined that the Success Fee and the Retainer model are the same approaches. However, in the latter one, a headhunter often searches with his/her team for a large number of potential candidates, approaches them, attracts, sells, and finds out about the skills, interest, and real motivation for the new possible job.
In the Success Fee model, the consultant or recruiting company sends the first five candidates they found to the client and moves on to the next assignment, where they try their luck in the same way. In the Success Fee model, the whole business model of a recruiting company is entirely different and is strongly based on the fact that many assignments are going on simultaneously because just some of them eventually generate income.
Here in Spain, Success Fee is a fairly common approach, and very often, the candidates involved in our processes are surprised that we want to talk to them first over the phone and after meet face to face. Many of them are always telling a similar example where they received a message from a “headhunter” asking for possible interest on LinkedIn for some open position. Then, his/her information was then sent directly to the company behind the assignment without asking him/her anymore.
If it’s NOT important to you to ensure the successful outcome of the recruitment, you don’t need the best candidates, and the candidate experience nor reputation of your company isn’t that important to you, then Success Fee can be the right way to go.
However, if you answer “no” to any of those points and it is important to you that you have the certainty of the successful outcome, you want to meet the best candidates, you want that your company brand will be taken care of, and the candidates involved will have a positive image of your company even when not picked for the job, then there is no question which one of these two very different approaches is the correct one for you.
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