Is it Really About to Get Better?

I read several blog entries here that suggest that the worst is over, and perhaps it is, but the business has gone through some perhaps fundamental changes and it may be a long time until we discover "business as usual," if ever.

Yes, large numbers of recruiters have disappeared - the inevitable consequence that is Darwinian and healthy when the strong survive and the weak disappear there is more food left for the strong - but there is also less job creation, less growth, less demand, more supply, and perhaps most alarmingly, less budget for recruiting.

The budget issue is interesting as we see clients and prospects pushing fees down and down and down - and it reflects a basic problem with pricing in our industry and a lack of perception of value added. To be a strong survivor and really come out of this year/decade stronger, we will need to be rational in terms of pricing and then actually add real value - shuffling resumes is no longer an added value attribute.

The idea that retained services should cost more than contingency is one interesting debate. Why take 100% risk, in contingency search, and charge less? Why not charge less for the sure thing, and charge more for at risk? That is the way the world usually functions - risk and reward go hand in hand.

The idea that fees must rise with salary is another issue that needs to be tackled. Does it really cost you more to find the $120,000 person than the $100,000 person?

More than anything, our business needs to adopt fair pricing that allows for profits, and then we need to raise the bar on value add. The idea is NOT to send in every person who can fog a mirror (one prospect I recently met bragged about his team interviewing 29 people for a job without yet making an offer - brag about that? What a waste of time that was for the client); a good recruiter should present you with 4 or 5 great alternatives, and that should be the end of it.

I think the business is going to see continued challenges as it evolves. The deep hole we are in may not disappear as we ring in the new year - beware - it is going to be several years of hard work to keep our heads above water. The strong will survive, and when it gets there, we will prosper, but this may only be the bottom of the fifth - unless we call the game for rain there is still a lot of play left.

Comment by Fran Hogan on September 15, 2009 at 2:23pm: Talking about changing the fee structure in our industry has always been a good way to start a discussion, usually contentious. Lots and lots of new pricing models have been suggested over the years but there has never been a one size fits all. The % pricing, which has been the "industry standard", is what everyone has fallen back on for lack of a better way to calculate our costs and price for a profit. If there have been any new ideas that worked well I haven’t heard of them. A lot of us have never been happy with the % of salary fee structure. It never reflected true cost/profit and probably has never made sense to our clients either. I have always tried to be creative without discounting in order to accommodate special circumstances or relationships

I would be surprised if any recruiter that is still "shuffling resumes" is still in business. I agree that our business is going to continue to change and bring new challenges. Adding value is a simple business principle. When we do our job right, we provide a service and value that can’t be duplicated in house. If you are doing your job right, you know your market, you have a solid network, you understand what your client needs/wants and you can put it all together.

Lots of clients understand that and don’t question why or what we charge. Others think we have a “candidate tree” and can just pick off ones that fit their specs and send them over. Ever had a client call you and ask if you “have any ------- in your files?” Expecting that the job title is all you would need to send them the perfect person. Those are the ones who don’t understand what we do. Finding the ones that do understand and value our services as the economy continues to struggle is our biggest challenge.

Comment by Dr Simon Harding on September 16, 2009 at 6:35am: Don, this is an excellent article by you. Fair pricing is absolutely critical in what we do. Thank you for putting it all so concisely here.

Comment by Todd Kmiec on September 16, 2009 at 1:29pm: Don, I wrote one of those worst is over (hopefully, wishfully..) blogs and I agree with you on a number of points. I am sure that the economy and overall business conditions are in for a real long haul of a difficult time, measured better in decades (hopefully only 1) than in years. That said, I still believe that when companies have gotten rid of everyone they could and still barely run their business, the next step is a growth step. With the lower headcount in the recruiting industry it may not take much for things to be pretty good. Reality is, nobody knows for sure, and we may not even be near the bottom yet. That's the freightening part but I'd much rather take a positive but realistic view. The fee questions and the evolution of the business are really interesting. From my perspective, there is not a lot of downward pressure on fees. I've heard from a few folks that the fees have to be lower because of business conditions, but it has been only a few. Our experience by an overwhelming amount is that the fees are not a problem at normal levels IF the need is worth paying a fee for. Far fewer positions than before warrant the fee realistically. Clients now rightly scrutinize whether they need to pay a fee to fill a position or not. That's the way it should be, but that doesn't mean that there aren't a lot of positions that warrant the fee. When it is worth A fee, then the normal fees are fine from what we have seen.

Should retained fees be less than contingency. I think so. Some of the radical ideas for changes to fees that I've heard about appear to be way off base with reality from what I've seen. The question about flat fees, does a $120k person warrant a bigger fee than a $100k person??? I think in most cases the market will dictate that percentages work best. Take it to the extreme and a $25,000 fee for a $50,000 person is not going to fly. By the same token, we have seen $500,000 positions where the client felt a flat fee had to be set and that has worked out well.

So I think there will be changes over time, but they will be slight. I think the basic need for help recruiting on certain positions will always be there for a lot of reasons. It just comes down to the question of whether the right candidate is findable without a fee or not. The right candidate is the far more important thing.