Why is having a high fee structure now essential for boutique recruiters?

The standard mantras about fee pressure will never go away, equally now the UK is in the midst of a skill shortage the likes of which has not been seen in a generation. Across all industries, companies are struggling to fill vacancies where the cost of not doing so means slower growth and a higher workload for incumbent staff, creating discontentment. Internal recruiters may well be able to fill the easier roles through using portals such as LinkedIN, but increasingly they will rely on trusted agents who can source candidates for the roles they can’t easily find candidates for. Like anyone else, they will have their own targets, where failure to source suitable candidates will reflect on them, therefore for recruiters, this is the time to be adjusting fees up if the only roles that will be commissioned is for the hardest vacancies to fill.

The implications for business profitability can be significant. For example, imagine a £60,000 role where the agency has a 20% fee agreement, making the fee £12,000. Now imagine the fees go up to 25%, meaning the fee is £15,000. That is an extra £3k purely going to profit where for a small business, the implications can be significant if that is replicated across the board.

Now refusniks will state that if they arbitrarily demand fees to increase then clients will just terminate agreements. There are a couple of counter points to make to this:

• Prior terms were agreed when the volumes of roles being sent to the agency were significantly higher, pre internal recruiters. If the client is going to commission the agency for fewer roles then the average fee should go up. After all, in the US boutique recruiters working on small numbers of roles typically charge a 33% fee!

• Candidate shortages mean that the service recruiters are offering is less commoditised than it has been for a long time. It is not guaranteed that the agency offering the lowest rates can deliver an equivalent calibre of candidate. Given there is no obligation to pay an up front fee, the recruiter has the right to charge higher success fees if they are the ones who are delivering candidates when no one else can.

• Finally, for the recruiter that has focused on building their network where they are seen as the trusted advisor by their candidates, those relationships mean that they can generate applicants where others can’t. it is time to monetise that investment.

With existing clients who will just not agree, assuming you want to keep them as clients, the only variable left to play with is to require some period of exclusivity, after all if there is a 2 week period where you are the only agency working the role that is worth something. The worst outcome though is to be one of twenty agencies chasing to fill a role, where the fees are under 20%. A 5% chance of making the deal means you end up having more roles to work on than you have time to really give attention to, resulting in any USPs around dedicated service becoming a false promise.

You may also think that having a high fee structure would prohibit from business development. Not necessarily. For example, using vacancy data a recruiter can profile a target client to ascertain which areas that company is struggling to hire, then make an approach based on the situation they are in. focusing in on the highest priority roles, where established providers and solutions have failed already will make a case for a higher fee structure much more compelling.

As your business development then becomes more effective, it will become easier to renegotiate with legacy clients with bad terms, as you can point to the equity of the contract compared to others and state that for you, it is not personal, but the business case for working with them on those terms is not there.

Over the last ten years Vacancysoft has worked with recruitment firms of all sizes to help them map out market activity in order to identify changes in demand. For more information about how we can help, please contact us.