How Discounting Imperils Search Quality

by Peter Cotton, founder and president of Best Sales Talent, LLC

“Selecting a recruiter because their fees are the lowest is rather like selecting the least qualified candidate because he asks for the lowest salary.”

Companies needing to hire people that think they are getting bargains by demanding low recruiting fees from search firms are only fooling themselves. They are actually hurt by discount pricing from search firms.

The pricing equation over the long term, for any smart business person is:

QUALITY + SERVICE = PRICE

If you want to get a discounted fee from a recruiter, service or quality must also be diminished in direct proportion to the fee. Lower quality means one or more of the following suffer: expertise, experience, understanding the assignment, personal chemistry, less attention to detail, skipping important steps in the recruiting process (i.e. reference checks and covering the counter offer with the candidate, etc.). Lower levels of service means that the quality of the service: evaluation skills, patience, tenacity, length of the search, or response time will take a nose dive. Cuts in quality and service usually are caused by work being pushed down to a less-experienced and overworked recruiter, or to a recruiter who may be “desperate” for a placement, who will accept the lower fee, and with whom the client has no relationship. These are the same recruiters who won’t be there two or three months from the date of the hire when the employer has a problem with the new employee.

In addition, the risk of failure on the search increases with lower price demands by the client. Face it: Recruiters are motivated by the assignments that pay them their regular fees, not discounted ones. Recruiters can only handle so many searches and candidates at one time. They must prioritize which assignments are the most important and invariably, the assignment that is at their standard fee gets the majority (or all) of their attention. Not the assignment that is discounted.

Recruiters send their very best candidates to their very best clients. They will send an “A Player” candidate only to their “A” and sometimes “B+” companies, so they can obtain the best offers for their candidates and accordingly, receive the highest fee for the placement. “C” companies never see an “A Player” candidate because they are not willing to pay top dollar to get top talent. .   (See my post: Talent Wins and Performance Shows  http://bit.ly/1YFXgIR )

“C” companies are generally unwilling to pay standard recruiting fees. Even some “A” and “B+” companies insist on discounted fees. It’s a message the recruiters hear loud and clear, so they won’t send those companies the very best candidates. They will send their best to firms that will pay the standard fee. Sophisticated clients worry a lot more about hiring the wrong person than they do about a 20% to 30% savings on the search fee, particularly in sales, where the hired candidate can generate more than sufficient new sales and profits to pay for themselves AND the placement fee.

Clients should choose search firms based on their expertise, experience, understanding of the client’s needs, level of quality of the service, response time, and personal chemistry. Only when two search firms are absolutely equal on all those criteria should price even enter as a factor.

Why are recruiter fees based on the candidate’s compensation?

Historically, the recruiting business and others like it (mergers and acquisitions, or real estate for example) have been basing their fees on a percentage of the transaction in question. It isn’t perfect, but a better way hasn’t yet been devised. Using compensation as the basis for fees gives the client a measure of predictability while also linking the fee to the importance of the search.

The best recruiters will differentiate themselves through the quality and service they provide, not based on price. They view their business relationships with their clients as partners in the hiring process. Most clients will find that their costs of hiring are actually reduced when a competent firm does the search and recruiting for them.

Other professional service firms.

There is more associated with the issue of expecting discounted fees from recruiting firms. Some companies think they are improving their odds by utilizing the services of several contingency search firms on the same search. They also demand lower fees from all of these firms in order to have the “privilege of doing business with them.” They don’t realize that they are minimizing their chances of finding the very best talent.

A good recruiter will ask the employer: “What other resources are you using now, or will use, in conjunction with working with our firm?” If the employer says that they are now working with other firms (or will), the chances are that the recruiter will either not work on the search, or will place it on a very low priority. There are many other ways a recruiter will learn that a company using multiple search firms on the same assignment. Not only is the search unattractive due to the employer’s “company policy” of paying less than a standard fee, but the recruiter’s chances of placing a candidate with an employer are greatly diminished where other firms are involved – so they won’t spend much time on it, if they spend any at all.

Employers utilize the skills and experience of other professional service firms like accountants and lawyers. When they need these services they don’t dictate the terms of fees being charged, nor do they ask for discounts, because they respect the professional providing the service. Moreover, they wouldn’t ask several accounting firms to do the work and then tell these firms that the discounted fee will be awarded to the firm who completes the work first. No accounting firm will work that way. Same holds true for needing the expertise of a law firm. No company in their right mind would ask several lawyers from competing firms to work on the same case on a discounted contingency basis, because they know that no self-respecting law firm would accept such terms.

The most important asset of any company is its people. People who perform well at their jobs are the life blood of any company. Without good workers, no company can survive. Recruiters can provide them.

“It is wise not to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money – that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that, you will have enough to pay for something better.”     …..John Ruskin, 1819-1900

Peter Cotton is an executive recruiter with over 40 years of experience.  He is the Founder and President of Best Sales Talent, LLC., a Franklin, MA executive search firm specializing in search, recruitment and placement of the very best sales, sales management and marketing personnel. 

Website: www.bestsalestalent.com 

Facebook: https://www.facebook.com/BestSalesTalent  

Twitter: @pcotton