Fee Question? Do you get paid for performance?

Have you ever run into a client that struggles with the RISK of paying an entire fee when they hire someone? We find this is a common concern of senior level managers and is a key consideration preventing them from wanting to partner with recruiters. I am wondering if others offer payment terms to their clients?

The “pay for performance” model works well with private practice environments who are hiring Physicians. We believe this model can work across the board and can be applied to any client situation. Would you consider working with clients under a pay over time as the candidate produces results basis? Do you think this would be a game changer for you?

How are these types of agreements structured?

Contingency Fee 25% - 30 % of first year annual salary.

The difference is in the payment terms….

50 % fee at start date

25% fee at 90 days

25% fee at 6 months

It is important to note that our model has you closing on a full fee of 25%-30% if you are willing to stand behind your recruiting work you should get paid a full fee. Do you agree?

I would love to hear back from others on how you are structuring fees with your clients.

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Replies to This Discussion

Permalink Reply by Kevin Cure on April 14, 2011 at 10:26am

I have gone so far as not billing a client until the full guarantee period ended which in my case was 90 days. I also have split fees in thirds on companies that were just getting started or were waiting on their venture capital infusion. Very interesting concept and in a true meritocracy environment that pitch would go very well. I will try it and let you know what response I get.

FYI... Normally, my fees are paid in full within 30 days of the start date. I have language in my contracts that cancels the 90 guarantee period if the client pays after the 30th day. My guarantees run: within 30 days FULL refund. 30-60 50% refund. 60-90 prorated to the exact final day of work.

Hope this helps.

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Permalink Reply by Charlotte Byndas on April 14, 2011 at 10:47am

@Kevin thanks for the feedback! Please let me know how it goes. Best of luck!

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Permalink Reply by Jerry Albright on April 14, 2011 at 10:49am

My guarantee is this:

1st 30 days: 75% refund or applied toward replacement

Day 31 - 60: 50% of fee paid applied toward refilling

Day 61-90: 25% of fee paid applied toward refilling

If the client wanted me to invoice according to this guarantee I guess I would consider it - but for the most part I am not a bank. My services have been rendered and the fee is due upon start date.

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Permalink Reply by Matt Anderson on April 14, 2011 at 11:29am

I have found that clients will minimize their risk by implementing their own payment terms despite what stated terms I request. They will either not pay me for 90 days or longer, spread out their payments over a couple months or tell me upfront that their payment terms are net 60. It’s rare that I get paid within 30 days of invoicing.

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Permalink Reply by Charlotte Byndas on April 14, 2011 at 11:36am

@ Matt What great feedback. So if this is true for you in your niche with your clients, do you "sell" your ability to work with them on this payment basis on the front end? It might be fun to see if you get more clients who would pay you 50% on start date if they could pay the rest of the fee as your candidate produces results for them. I would guess that you are doing a good job matching great candidates with great clients so in the end your placements are solid, it just seems to make sense to tell managers that you are "in the game" with them. Thanks for responding best of luck to you!

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Permalink Reply by Edwin Ostrand on April 14, 2011 at 12:27pm

Having done retained searches now over a decade now, my fee is 30% - 35%, of first year base, plus expensive. I/3 at the start, 1/3 in 30 days and 1/3 when competed (generally all are completed in 60-90 days max) and I conditionally guarantee all talent for one year from hire. I never had to replace anyone, as I try to insure a good cultural match and not only skills. I hope this helps.

Best in 2011,

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Permalink Reply by Charlotte Byndas on April 14, 2011 at 12:59pm

@Ed thanks for the feedback. Congrats on your outstanding record! All the best in Q2. :)

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Permalink Reply by bill martineau on April 14, 2011 at 5:17pm

You're not getting paid for performance you're financing their fee and losing money in the transaction.

Getting paid for performance implies that someone grades out the candidate over time and that based on those grades you get more or less money.

Example:

50% (total fee) upon arrival and 30 and 90 days in we grade them out. A=30% B=25% and C=20% (of total fee). this would hold the prospect of getting a premium if they are graded at an "A" making the standard fee at a "B" and losing some money. The other issue is who grades and how would that be determined? Personally that sounds like a lot of problems.

Now my company does do contract to perm conversions (think rent to own), but we make a premium over our standard fee since we (and the candidate) run the risk of it not coming to fruition and for also providing the financing for their fee.

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Permalink Reply by Michael Webb on April 14, 2011 at 5:58pm

Having been in recruiting since 1979, I felt I probably had a fair idea of what makes a good recruiter. Consequently, I fell into Rec2Rec.

Fees are always an issue in any business, clients will never see it as a value for money proposition. They see value, but not value for money. Worse, is the guarantee. This creates so much angst, I decided to get rid of it altogether. So I structured my fee this way, no guarantee, half fee after 6 weeks, the other half after 6 months, but only payable if the candidate still employed. This was based on the premise that a good manager has a pretty good idea a Recruiter will work out within 6 weeks and if the Recruiter is still there after 6 months they must be working out ok. (Interested to hear comments on that.)

With one client, all was going well, both parties happy and got paid after 6weeks. Sent the second part invoice after 6 months, they refused to pay. The Recruiter was not working out. Still employed though, but not working out. And this is in the Rec2Rec business.

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Permalink Reply by Charlotte Byndas on April 15, 2011 at 10:02am

@Bill Thanks for the comments! I can relate to where you are coming from and have used the contract to hire method with some of my clients and I can appreciate how you can then end up with a larger fee that is paid out over time.

I have always thought that one of the best things about being in this crazy business of ours is that there are many ways to structure how you work with your clients.

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Permalink Reply by Charlotte Byndas on April 15, 2011 at 10:06am

@ Jerry Thanks for the feedback on how you structure your contracts. I am wondering if you don't mind sharing, do most of your clients pay you at 30 days or do most pay at start date?

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Permalink Reply by Jerry Albright on April 15, 2011 at 10:13am

Most of my clients pay within 10, 15 or 30 days. But I must add - I'm not working with small companies. I would be concerned if my client base were the companies where my fee became a big concern.

I'd guess that some recruiters work with clients where the check needs to come directly from the owners bank account - or at least feel that way. I don't work with those situations.

On the overall topic - I can't really "guarantee" the success of someone I recruit. They know who they're looking for at a far greater level than I do. I simply make the connections. I am not involved in anything beyond that point - so don't really see how I can or should be held accountable. My performance is done the day they start.