Setting rates for your recruiting services can be difficult and confusing. You must set your prices high enough to make a profit but low enough to maintain a steady flow of clients.
So, how much do you charge in recruitment fees? You can determine your bill rate by considering market research and the types of services you provide.
Do market research
When you are setting your recruiter commission rates, you should conduct a market analysis. You will research multiple factors that can help you decide how much to charge.
Look into your competition. Find out what other recruitment agencies charge for their services. You are competing with these other agencies for clients, so your prices should be comparable.
Your competitors might not be willing to talk to you about their prices. If so, you will have to find alternative ways to discover their prices. Try looking at their websites to see if there are basic rates listed. You might also try asking businesses you would ideally recruit for what they have paid for recruiting services.
Check out other recruiting agencies in your industry. If you recruit for general positions, look into other agencies who also recruit for general positions.
How much money do recruiters make in your industry? Consider agencies located all across the country, as prices will vary by location. If you recruit for more than one industry, conduct research on each.
Look at other recruiting agencies in your geographic region. You might focus on a specific city, state, or larger area.
Find out what the typical recruitment fees are in your area. Consider all agency sizes and industries. Looking at a variety of agencies in the area will help you determine if there are any regional standards.
Consider your services
What you charge depends on the services you offer. Different services typically use different staffing agency pricing models.
When you make permanent placements, you have a couple of options for pricing your services.
To be clear, this section isn’t about placing contingent workers. Here, we’re going to talk about contingent pricing.
With contingency recruiter fees, the client doesn’t pay you at all until you place a candidate. Often, recruiters working on a contingency search have to compete with other internal and external recruiters. You must bring the best candidate faster than all the other recruiters to earn the fee.
After the client hires a candidate, they must pay you based on the pre-established terms. With contingent pricing, recruiters typically earn a percentage of the candidate’s first-year compensation. The percentage is often between 10-35% of the first year’s wages. However, the percentage may be more or less depending on the location and the scarcity of the candidates.
Retained pricing is another way to earn a fee while placing permanent candidates. Like contingent pricing, retained pricing is a percentage of the candidate’s first-year compensation.
However, you don’t have to wait for the entire fee until your client hires the candidate. Instead, the client will pay portions of the retained search fee at set intervals.
Typically, the fee is paid in thirds. One third is paid upfront, the second third is paid at a specific milestone, and the final third is paid after a candidate is hired. But, you may create a different arrangement with your clients.
Offering contract staffing services is a great way to create a steady flow of income that comes into your agency.
With contract placements, the client will pay you an hourly rate based on what the contract employee earns. You earn money for every hour the contract employee works.
You can use a formula when determining how to calculate bill rate. The formula is:
Hourly Bill Rate = Hourly Pay Rate + Tax Burden + G&A (Back Office) + Recruiter Share
Talent management consulting
To add more services and increase your income, you might add talent management consulting to your agency. With these consulting services, you can help clients improve their businesses and their hiring processes.
You will likely charge an hourly rate for your consulting services. However, you could charge a per-project fee.
Make sure you do market research when setting consulting fees so you set a fair and competitive rate.
Other pricing considerations
You can adjust your pricing or services to give clients better rates while still earning money.
For example, you might offer reduced rates to clients who repeatedly hire you. Or, you might give a reduced rate if a client gives you multiple job orders at once.
You might also offer a placement guarantee. With this guarantee, you promise that if the employee is terminated within the first 30 days (or another time period), you will replace the candidate for free. While this isn’t great for you, the guarantee helps keep clients happy.
You can also offer an extended guarantee. If the candidate is terminated after a longer period of time, you will replace the candidate at a reduced price. For example, you might promise that if the candidate leaves between 30 and 90 days of being hired, you will replace the candidate for half price.