The most commonly resented aspect of recruitment concerns fees. Clients have tended to grudgingly suffer the high perceived cost as there was no viable alternative.
To be fair, many recruitment companies do strive to be genuinely competitive, but only in comparison with each other. Agencies try many things to sell themselves in a more compelling way, but it is quite obvious that all they manage to do is rearrange the same old problems within the business model. All of the bigger agencies are burdened with the same significant embedded costs because they share the same business model.
There are three main drivers of the high fees in most established agencies.
- Office Rental and Fixed Costs
- Multiple Management Layers
- Recovery of the Cost of Unsuccessful Assignments (Low fill rates)
Recruiters have traditionally been slaves to their image. Flashy offices have long been regarded as an essential sign of success even for the small agencies.
Whilst annual rentals of up to $250,000 per year for the largest agencies sounds like a big waste, it is one of the smaller cost drivers.
A far more significant cost is the multiple layers of management required to whip along what is usually a predominantly very young army of consultants.
Typically these commercially inexperienced consultants require a team leader in the first instance. The team leaders are supervised commonly by practice managers, the practice managers by geographic managers, the geographic managers by the NZ manager and he or she often reports in to another layer of management either at board level or offshore.
The problem here is that each management position can command a six figure salary, rising significantly with each step, whilst becoming less and less productive and out of touch.
Added to this, the egos become so great that in an effort to retain some experienced consultants they are often conferred ‘manager’ or ‘senior consultant’ titles and increased remuneration whilst only having one or two direct reports. Although this wastes millions of dollars annually, this is still not the largest cost driver.
Un-billed hours cost recovery
This is the real biggie.
If you have ever wondered why the recruitment fee is $15,000 for a 90k position, when you as a client did most of the work selecting and interviewing, then you should be aware of the following:
Although it can vary depending upon market conditions, the average fill rate for a ‘good’ agency is still only about one job in every three.
Simple cost recovery accounting dictates therefore that the cost of unsuccessful processes for agency clients (sometimes three or four other clients), must be spread across the clients the agency does successfully bill.
I haven’t met an organization yet, that isn’t furious about paying for other organisations’ services and many concede that they knew or suspected this was the case but there was no simple and effective alternative.
Additional cost drivers to be aware of –
- Foreign owned agencies, that are commonly forced to repatriate the bulk of the profits they make, to pay the parent company shareholders and executive bonuses.
Over-engineered solutions which are endemic in what is essentially a very simple business.
- Individuals or teams who have broken away and formed their own small independent agencies, but have not questioned the model, and simply replicate it, fees and all. Often the only environment they have ever worked in is a large corporate and so, either independent commercial thought escapes them, or they are just greedy (There are exceptions,but they are rare).
Despite many good intentioned staff and managers, the effect of a decade of good times, of industry self-justification and a lack of lean commercial focus, means the large recruitment agencies are now struggling within the dated model. Faced with rapid economic climate change their fate has probably been sealed.
The Recruitment Project’s Approach
Our ‘virtual organisation’ model
Our recruitment collective delivery model has been specifically designed to deliver sustainable, top quality services whist avoiding all of the three major unproductive cost drivers above.
We have elected to work from our own homes, with access to CBD interviewing offices when required, supported and coordinated from a central ‘Home Office’ which provides admin, marketing and financial support functions.
In addition we have installed a simple, state of the art, locally built CRM /Recruitment software platform accessible from remote locations by our consultants and even our clients.
Elimination of management requirement
Because our consultants are established specialist recruiters and self-employed contractors we do not need to manage them.
We do not pay for down-time and they of course are not driven to achieve pointlessly time wasting phone call / client visit / marketing KPI’s.
TRP consultants are held accountable based upon efficient delivery times, successful performance and client feedback.
Elimination of un-billed hours
Most importantly however, the majority of our work is completed successfully on an hourly rate basis in an average of 25 – 35 hours. There are minimal costs associated with unsuccessful processes, so the biggest single cost driver in the industry is largely eliminated.
Our fees represent only work actually done for a client to fill their particular role.