What affects the price a tech recruitment agency could charge you
We at Toughbyte do technical recruitment & headhunting and offer different payment plans to companies we work with. If you’re looking for help with your developer positions from external tech recruiters, it is important to understand the various pricing options in order to choose the best one for you.
Agencies can offer several payment models, but the most common ones are a success fee only model and a retainer. The success fee only model is based on a certain percentage of the placed candidate’s annual salary or a fixed amount you agree on in advance. The retainer is based on a daily rate that you pay to an embedded recruiter. If you’re unsure which option would be best for you, we’ve covered the advantages and disadvantages of working with embedded recruiters in our blog post on the pros and cons of recruitment process outsourcing (RPO). In this blog post, we’ll go deeper into the factors that affect the price a tech recruitment agency could charge you.
Depending on the payment model
First, let’s discuss the factors that depend on the agency’s payment model.
Success fee only
This payment model is sometimes called contingency and involves a fee ranging from 15% to 25% of the candidate’s pre-tax, i.e. gross, annual salary due when they start working for you.
The first significant factor affecting the fee percentage is your salary range for the position. The higher the range, the more open the agency might be to reducing the price. If the range you’re offering is too low, the recruiters will likely be less flexible on pricing and will charge their standard fee to make their work financially feasible. Note that the range you initially quote should be realistic - if you end up offering amounts at the lower end of the range to all presented candidates, your relationship with the recruiter may be negatively impacted.
Insisting on specific warranty terms, such as free replacement or refund, is also a price-defining factor. The warranty period can last up to six months and can be set by the agency independently or reflect the candidate’s probation at your company. Extending it to more than six months is uncommon and even if the recruiters agree to do it, they will charge you more to compensate for the potential risks involved. If you want a full rebate, the fee will be higher for the same reason. Some agencies can offer to split the payment into several parts as an alternative, which is equivalent to a partial refund and is less of a strain on your recruitment budget from a cash flow & accounting standpoint.
The agency’s pricing also depends on how easy the recruiters think the position is to close. They consider several things, such as the size of the potential talent pool and your interview process structure. The larger the talent pool, the better since the likelihood of finding a suitable candidate fast is higher. At the same time, the more steps your interview process involves, the harder it is for external recruiters to keep the candidates motivated for long. The risk of them doing a lot of work for nothing is also higher if the candidates could drop out because of a lengthy interview process.
The industry your company is in matters as well. If, for example, you’re doing consulting or are in the online gaming industry, finding candidates ready to work for you could be more difficult and take longer. Thus, you should expect the agencies to charge higher fees for the effort and time they would put into closing your positions.
Another factor worth mentioning is the number of positions you have open and plan to close in the future. The more positions you want the agency to help with, the better the chances of negotiating a reasonable price that would satisfy both parties, especially if you’re open to building a long-term partnership with the recruiters by giving them more positions to work on in the future.
The next thing that can influence the pricing is whether you’re already working with other recruiters or not. Suppose you’re open to having an exclusive partnership with an agency. In that case, you can expect a more favorable commercial offer from them since there’s no risk of other recruiters getting ahead and closing your positions. If you’re engaging multiple recruitment agencies, the new one might only be willing to reduce the fee slightly to match the price the others charge you. Sometimes the agency won’t offer any discounts at all because of the increased risk of having your positions closed faster by someone else.
One more important factor affecting the agency’s fee is how easy they think it will be to work with you. If you represent a smaller company with few people involved in the hiring & decision making process and are very responsive yet have clear processes in place, the agency may be willing to adjust their pricing.
If the factors we’ve covered above are favorable, the agency might be ready to offer you a discount. For example, they can lower the fee for the first placement to get the partnership with you going and showcase their expertise on the condition of revisiting the price in the future. Another possible option could be a progressive discount on multiple positions, where the agency would reduce the fee if the subsequent position is closed within a few months of the previous one. If you’re looking to close senior or higher-tier positions, some agencies can agree on a fixed fee that you would have to pay regardless of the candidate’s final salary.
This model involves one or several recruiters working exclusively on your positions on a daily or monthly rate. The recruiter’s daily rate can start from 200 EUR, depending on their experience level. More experienced recruiters will charge a higher rate, which can also depend on their expected workload. For example, if you need them to process candidates that apply to you directly on top of those whom they source by themselves, they will charge more for their services. One thing to note, though, is that if an experienced recruiter is offered at too low a daily rate, the agency can lose money since that same recruiter would be able to generate more revenue working on a success fee only basis.
Some recruiters offer a hybrid model, whereby they also charge a fee for a successful placement, however that is usually significantly lower than the one they charge when working on a success fee only basis.
Regardless of the payment model
Some factors come into play regardless of the payment model, so let’s take a closer look at those.
The first one worth mentioning is the recruitment team’s workload. For example, if the recruiters are busy with a high volume of open positions, they may charge a higher fee to maximize their earnings. Additionally, if the team is less busy, they may charge a lower price to attract more clients.
General market conditions should also be considered when looking at recruitment services prices. If the job market is tight, with high demand for tech talent, agencies can charge higher fees as they might have a valuable pool of candidates to offer to companies and plenty of potential clients to choose from. On the other hand, if there are a lot of layoffs and the demand for developers is lower, external recruiters may be ready to decrease their prices to remain competitive and attract new clients.
The next factor affecting the prices of tech recruitment services is the time of the year. During specific periods, such as the beginning of the fiscal year, companies may have more budget and be more willing to invest in new hires. This can increase the prices that recruitment agencies charge. On the other hand, there can come a time of the year when the demand is relatively low. For example, in the Nordics July tends to be a quiet month, so agencies can be more flexible on their pricing for new clients that are able to process candidates during this time.
Finally, there is the location of the recruiter. Recruiters in major cities or technology hubs will charge more due to the higher cost of living and increased demand for their services, while those in lower-cost locations working remotely will charge less.
Understanding what affects the prices external tech recruiters charge can help you make a more informed decision about which recruitment firms to work with and how to get the best value for your money.
There are several significant factors affecting the price external tech recruiters could charge you depending on the payment model they offer:
- The salary you’re offering
- Warranty terms you insist on and whether you want a rebate or not
- How easy the position is to close, which involves the size of the talent pool, the structure of your interview process and the industry you’re in
- The number of positions you have open and plan to close in the future
- Whether you want exclusivity or are working with other agencies
- How easy it is to work with you
- The recruiter’s level of experience and workload if you want to engage them on a retainer basis
Some factors can influence the price regardless of the payment model:
- The recruitment team’s workload
- General market conditions
- Time of the year
- The recruiter’s location
Overall, the services of external tech recruiters are worth the price and have benefits in terms of cost reduction. The agencies know the salary ranges for candidates and can help you finalize compensation structures. Also, you can use their help only when needed rather than increase the size of an in-house recruitment team. Additionally, you can reduce the costs of finding a replacement if a candidate leaves, as agencies often provide a free replacement warranty. Lastly, you can save on marketing expenses for job postings, as agencies usually cover the costs of posting jobs on various platforms and promoting positions among their candidate network. If you’re still unsure about engaging external tech recruiters in your hiring campaign, our blog post on why you should work with a tech recruitment agency will help you make the final decision.