With perm placement, pricing must be based on a % of the hiring salary.  Why?  As inflation increases over time, the laws of supply and demand force labor wages up.  If we charge a fee based on a % of salary, then our fees will go up over time thus keeping pace with inflation.  If we charge a flat fee, that hurts our industry.  When charging a flat fee sooner or later inflation will increases costs to the point the fee is too low, and then one must go back to customers and renegotiate a higher flat fee.  It makes much more sense to stick with a % of salary.

The perm fee percentages used to range from 20% to 30%  of the salary.  But that has been driven downwards to 20%.  If a recruiter or rep has a relationship with a top executive within a customer, they can still negotiate higher fee %.  But if the decision maker is human resources, they are going to push us downwards to the 20% range.  Why?  Because if you were an HR Manager and various staffing firms were offering to work your job orders for 15% to 20%, how am I supposed to come in and demand 25%? 

One reason the fee % have eroded over the years is that years ago we recruiters had to cold call head hunt to source candidates back in the day, while today many do little more then use Monster.com.   So the fees we charged years ago matched the time and effort we put into the search.  But when the internet came online, and Monster.com and Careerbuilder were created, recruiters started to get lucky by sourcing candidates off the internet, finding qualified people whom the customer simply missed or overlooked.  An example is I can remember a job order I received for a Controller, I posted the job to Monster.com – I wrote a better ad then my client did so I was the one who received the better response – and I received a resume from a candidate whom my client hired. I earned an $18,000 fee for about 2 hours of work.  This mindset is what has allowed the staffing industry to back pedal and agree to work on job orders for lower fees.

These days?  I find I must explain the difference between a head hunting search vs. using the internet – clearly explaining to my customer the difference between the two methods, showing them the time and effort that goes into a head hunting search to educate them to see the value.  If they do not understand how much effort goes into a head hunting search they are not going to see the value and will resist paying higher fees.  So for me to talk a customer into paying the higher fees I must first clearly explain the steps of my search so they can visualize all the effort I am going to put into it. I must clearly make them understand I am doing far more then searching a resume database.

Temp Staffing Gross Margin:  Customers want the best value for the lowest price.  And staffing firms are famous for low balling each other to win new business.  The solution to this is the same as above.  Often times the customer has no clue what goes on behind the scenes.  I will tell the customer that other sales people will tell them what they want to hear to get their business, but that does not mean after the fact they will be able to provide a good service.  Anyone can make promises, delivering on those promises is a different story.

So here is how I educate my clients.

I explain the sales rep is under pressure to bring in new business so they will say and do anything, even low ball price to bring in new business.

I help them understand in order for us to recruit quality applicants for temp jobs, we must be able to offer a wage that is attractive enough to recruit the better applicants.  I explain how  Billing Rate – Pay Rate = Gross Margin.  And I tell the customer if they beat me up too much and expect the lowest price, I am then forced to decrease the pay rate, which limits my ability to attract the better applicants. And I tell them this is true of any staffing company they work with.

I then explain that with most all staffing companies the recruiters are paid a commission based on a % of the gross margin.  So if the customer tries to push us into too low of a billing rate, in order to find decent people to recruit for temp jobs the recruiters must offer a reasonable wage, and the only way to do that is to pay a decent wage which squeezes the gross margin, making it near impossible for the recruiter to earn any commission.  So by default what happens is the recruiters either supply the worst applicants, the bottom of the barrel people who will accept the lowest wage. Or, the recruiters simply do not work the job orders from that client and focus instead on other clients who pay a more attractive billing rate.

I educate the customer to understand if they want a win/win long term relationship with a staffing company they should not pay the highest bill rate, but should not push to pay the lowest bill rate either.  What should happen is they should pay a reasonable billing rate somewhere in the middle that is low enough to make my price competitive, while also being high enough for me to have enough room to attract better caliber applicants while also being able to pay the recruiters a decent commission, thereby elevating the customer into a top priority status.

Obviously I am very careful how I explain these things.  But this is sales 101.  If a customer does not fully understand the product or service, or what goes on behind the scenes – they may not see the value and if they do not see the value it is very hard to talk them into paying a decent price. I have been on 100s of sales calls in the staffing industry, listening to reps and managers conduct their presentations.  I have never heard anyone explain such things as I mentioned above to the customer. Usually they just ask for the job orders, ask what other staffing companies charge, and then try to match or beat the price of other staffing companies.  In order to justify a decent price, you must educate the customer to fully understand what you will do for them, and what is required for you to give them the best service.

That is not unlike hiring a contractor to do work at your home.  One contractor might have a low price, and another a higher price.  If all you had to judge them by was price, you are going to choose the lower price.

But what if it became clear one contractor hired low wage unskilled laborers to work on your home, while the other hired experienced carpenters and tradesmen?   Then you might be much more open minded to paying the higher price.