How To Avoid Expensive Recruiting Fees When Hiring Talent

Thinking of hiring a third party recruiter for an upcoming software development project or hard to fill position, but don’t want to incur outrageous lump sum fees? Consider a “service” provider that charges on an hourly basis to protect yourself and maximize return on investment.

Standard recruiting firms operate on an old and outdated business model that does not serve most companies well.

For example:

Barry Gain runs a small, but growing software company providing a leading edge digital imaging solution for the aerial industry. Used widely by wildlife conservationists covering a large geographic territory by helicopter allowing them to monitor the health of various animals critical to the regional ecosystem. They want to expand their offering to include the ability to track volcanic activity and other pending nature disasters that would seriously impact migratory routes. He anticipates this will result in an additional $500,000 per year in potential revenue. They have a project in mind to upgrade their current system which requires a unique set of skills not easily found in the marketplace and requires time he doesn’t have to recruit a specialized team of 4 people. This includes two software developers, a QA testing analyst and a project manager to ensure deliverables arrive on time and on budget. His concerns:

Lump sum recruiting fees: a quick survey of companies in the area suggests they charge around 20% of the person’s annual base salary. Since each person will be earning about $80,000 / year that means he is looking at a $64,000 investment ($16,000 x 4). Not out of the question given the potential revenue he stands to gain as long as the new hires work out as planned.

Recruiting methodology: while each company claims the ability to find “top talent” he has yet to receive a concrete overview of the tools used to attract these people over and above running a simple ad on a popular job board.

Replacement guarantees: all firms offer a 90-120 day one time replacement guarantee if the new hire leaves for any reason (e.g.: terminated or they leave on their own accord). However, what if they leave 1 day after the guarantee period? That’s a lot of money to risk over a short period of time. Moreover, how much priority will they put on the second search once they’ve already been paid?

The solution: a “service provider” that charges by the hour! This ensures Barry is not stuck paying large lump sum recruiting fees, receives a weekly report on the activity used to attract top talent and has no replacement risks. Barry estimates each search will take about 3 months and at $50 per hour for 10 hours per week that’s $2,000 per month per search or $8,000 per month for all 4 positions. Based on a typical 3 month successful search he is looking at a one time investment of $24,000 versus $64,000! What’s more, he offers each new hire a semi-annual incentive bonus of $2,000 to encourage employee retention and protect himself against replacement costs. This amounts to another $16,000 (4 new hires x $2,000 x 2 times per year) which is still only $40,000 versus the $64,000 traditional recruiting firms want for their services.

Check out: True Cost of Hiring Tech Talent

So, next time you are thinking of recruiting for a new project: think of a “service provider” that charges hourly versus incurring expensive lump sum fees. Save the difference to fund your project and grow your business.