Pros and cons of recruitment process outsourcing
We at Toughbyte offer technical recruitment and headhunting services to companies in Europe and the US. We work on both a success fee only basis, a retainer or some combination of the two. Many companies we talk to aren’t clear on which model is best for them and opt for the success fee only model as that’s perceived as being the less risky option. In this post we’ll explain the pros and cons of working with a recruiter on a retainer, the steps involved and help decide whether it’s the right option for you.
What is RPO?
Before we get into the details, let’s clarify the definition and meaning of the term. Tech recruiters working for companies can be broadly grouped into two categories: internal or in-house recruiters and external recruiters. In-house recruiters are on the company’s payroll and employed as part of the HR team, whereas external recruiters are subcontractors, working either as freelancers or via a tech recruitment or staffing agency.
Recruitment process outsourcing (RPO) is sometimes used to refer to any work performed by external recruiters. However, it is most often used to specifically mean working with an external recruiter on a retainer rather than a success fee only or contingency basis. In other words, instead of paying the recruiter only in case of a successful hire, companies work with them on a time and materials basis, paying them for the number of hours or days worked. It also implies having the recruiter work for the company full-time and is sometimes referred to as embedded recruitment.
Some firms also confusingly call embedded external recruiters in-house recruitment consultants. It is possible to have a hybrid model where in addition to the retainer a small fee is paid for every successful placement. However, as long as some form of retainer is present, this too is often referred to by the same acronym, RPO.
Pros of RPO
Let’s start with the pros as they may not be as apparent.
Lower and more predictable costs
If you’re hiring for many roles or have ongoing hiring, RPO offers more predictable and lower costs. The exact cost savings depend on the recruiters’ retainer fee and performance, but it should be easy to make a quick back-of-the-napkin calculation. For example, with a fee of 20% of the candidate’s yearly salary and an actual salary of 60K EUR, the cost per hire or placement fee is 12K EUR. In order to break even, a recruiter costing 400 EUR a day would need to place one candidate every 30 working days. This is well within reach for most positions, even when working on a success fee only basis. The best-performing recruiters can close a position every 10 working days.
Note that if you’re comfortable working remotely, you should be able to find an embedded recruiter in a lower-cost location, which, given the employer overheads, will be cheaper than employing an in-house recruiter locally.
Improved alignment and communications
An RPO recruiter working full-time will become a part of your team in a way that one working on a success fee only basis cannot. As a result, they will have a better grasp of your company culture & values and will be able to do a better job of screening for and communicating them to candidates. This will translate into more relevant candidates sourced in less time.
They will also have a better understanding of your hiring processes and preferred methods of communication using the tools you prefer. It will be easier for you to provide direct access to hiring managers, reducing the amount of time you need to spend scheduling interviews and chasing colleagues for feedback. You can even have the recruiter field candidates from other agencies, although candidate ownership rules need to be carefully defined and some agencies may be reluctant to work in such an arrangement.
As the recruiter won’t need to context switch between different clients, their productivity will increase. They will not deprioritize your positions and switch to working on easier roles from another client. The extra stability & security will reduce stress and ensure they’re focused on longer-term goals & feel more ownership, taking on more responsibility.
Finally, unlike a recruiter working on contingency, it will be easier for you to spend more face-to-face time with them, further strengthening the working relationship.
Better use of and access to data
Since a recruiter working on a retainer will work for you full-time, you can give them full access to your applicant tracking system (ATS) and candidate database. Just make sure that data confidentiality is covered by your contract. This will allow the recruiter to reach out to promising candidates that have already interacted with your company, increasing response rates.
When sourcing from external sources such as LinkedIn, they’ll also be able to cross-check the internal database and avoid contacting candidates that had already been approached or did not pass screening. A recruiter working on a success fee only basis will not have access to this information, so is more likely to unnecessarily contact someone you’ve spoken to recently, potentially negatively impacting your HR brand.
Increased flexibility compared to in-house recruiters
An RPO recruiter will be able to start working for you much sooner than an in-house one. The hiring process for in-house recruiters takes longer and they will have a notice period with their previous employer preventing them from starting with you right after accepting the offer. Agencies on the other hand have a large percentage of recruiters working on a success fee only basis that are available to switch to RPO almost immediately.
At the same time and assuming you have a short notice period or a zero-hour contract, parting ways with an RPO recruiter is also faster and less painful, as there’s no expectation of permanent employment. This means an RPO recruiter can be a great solution when you need a fixed-term substitute, such as in the case of parental leave.
You will still get many of the same benefits as with an in-house recruiter. For example, an embedded recruiter will be able to represent your company via email and on professional social networks. This will increase response rates, as some candidates are reluctant to talk to agency recruiters. They will be able to assist with tasks other than headhunting, sourcing and interviewing, such as handling applications on your career site, improving processes and participating in employer branding initiatives.
Cons of RPO
Higher financial risk
Since you’ll be paying for time spent rather than results, you run the risk of spending money without anything to show for it. The way to mitigate this is to interview recruiters before starting to work with them. You should also have a short notice period in your agreement allowing you to terminate it quickly, if needed.
When working on a success fee only basis, you will be offered a rebate or a warranty, whereby the agency will look for a free replacement if the candidate they place leaves within the first few months. Agencies offering embedded recruiters typically provide no such warranties.
If you’re hiring for only one role or your company is slow at processing candidates and adapting position requirements based on feedback, there’s also the risk that some of the work done by the embedded recruiter will go to waste. For example, they could spend time sourcing in the wrong location or their candidates could drop out of the hiring process due to delays in receiving feedback.
With success fee only you agree on the fee once since it is a percentage of the candidate’s yearly salary. With RPO you will need to negotiate the rate separately for each recruiter as it will vary based on their level of experience.
Increased time commitment
In order to get your money’s worth, you will need to invest more time in onboarding an RPO recruiter and bringing them up to speed with your internal tools & processes. However, this will pay dividends, assuming they catch on quickly and work with you longer term.
Some agencies providing recruiters on a retainer provide very little or no training and support to them, often parachuting in someone with little relevant experience who they just hired. So, it's worth quizzing them on this beforehand. Top recruitment agencies not only provide training and a dedicated mentor, but also encourage RPO recruiters to source candidates from their own database.
Given the time investment, you may want to have the embedded recruiter join your team as an in-house recruiter, employing them directly sometime in the future. If this is something that the recruiter themselves is keen on, most agencies will agree to it for some fee. However, make sure that this fee is clearly defined in your contract before starting work, so that there are no surprises and to avoid straining your working relationship with the agency.
So, when should you choose RPO and when should you go for the success fee only model? As you can see, there are quite a few things to consider and which model is better for you may change over time.
It is tricky to work with the same agency using both an RPO and success fee model at the same time due to the complexity of determining which fee should apply when. However, it should be easy to switch from one model to another as most of the terms in the contract will be the same. If you’ve had a good experience working with an agency using one model, you’ll likely have a good experience working with them using another. So, if you need external help, don’t stress too much about which model you should choose, but rather start working with an agency you like and adjust the model later, if needed.