Which are the most popular and which are the most effective pricing approaches for recruitment service?

We asked ChatGPT about it.

And here is the answer:

The recruitment business and staffing services employ several basic pricing methods. Staffing agencies determine their prices based on factors such as the scope of services, position levels, geographical location, and specific client requirements. The most popular pricing methods include:

1. Percentage of the employee's first-year annual salary.

This is the most common pricing method for recruitment. This percentage typically falls between 15% and 30%, and the exact amount depends on the complexity of the position and the level of candidates being sought.

2. Flat fee.

In this method, the agency and the client agree on a fixed amount to be paid for the recruitment service, regardless of the candidate's salary. This method is commonly used for lower and mid-level positions.

3. Hourly rate.

Some agencies set their prices based on the hours worked on the project. The client pays for the actual time spent searching and interviewing candidates.

4. Retainer fee.

This method involves paying a portion of the fee upfront, with the remainder paid upon successful hiring of the candidate. It is commonly used in the search for executive personnel and senior management positions.

5. Success fee.

The agency only gets paid if the candidate is hired successfully. This fee is often higher than other methods because the agency bears all the risk of failure.

Points 1 and 2 mainly address how the agency's remuneration is calculated, while points 4 and 5 specify the payment method and timing. They also focus on how the risk of finding a candidate is shared between both parties, how extensively the client-employer collaborates with one or more HR agencies and uses services from multiple sources, and only pays one of them.

The surprise is in item 3, where we see an hourly rate for the recruitment service or the time that the employer is committed to the HR agency and its resources of consultants, expertise, labour costs, software, marketing, etc. This option is quite fair, especially if the client intends to thoroughly research the market of professionals, their compensation, and the tendency for experienced professionals to change jobs and consider joining the client's team. It also considers whether the professionals will accept the employer's working conditions, culture, and values.

So, even ChatGPT seems to “understand” that the payment model for professional business services, such as recruitment, follows a specific business logic. Just like with lawyers, accountants, and financial consultants, if a client wants to benefit from quality, professionalism, and reliability while engaging the time and expertise of a professional, they should be willing to pay for the value of the service they are using.

Here are some practical advantages

of paying hourly for the services provided by the staffing agency we are collaborating with:

• Scheduling the appropriate agency resources to complete the assigned project is crucial. Successfully implementing increasingly challenging recruitment projects requires the participation of qualified, motivated, and well-trained recruiters. You don't believe that with the probability of potential "success" with your company, the HR agency will determine its best consultant for your project, do you?
• The quality of service comes with a cost. To maintain a team of qualified professionals and provide your company with their expertise, the agency should ensure the security of the cost of their staff and the resources they use. This will prevent the risk of their services being cancelled due to hiring an internal candidate or selecting one from another agency.
• You only pay for the services you use. There's no such thing as a "free" professional service, right? If you hire an employee through the agency, you'll only pay for the time and resources the agency actually used. You won't be charged an inflated price that also covers all unsuccessful projects besides yours.
• When you hire an agency on an hourly basis, the final cost is generally lower compared to "on success" work. This means that regardless of how many candidates you hire for the same project, once you've paid for a certain volume of activities (which is nearly the same whether you hire 1, 3, or 5 candidates for similar positions), the agency will not charge you a fee for each individual placement. As a result, the final cost of the service decreases with each candidate you hire.
• The right resources at all times. You can't always rely on the same level of enthusiasm and motivation from an agency after experiencing several unsuccessful projects, for whatever reason. While on the other side with regular reporting on the resources and work done, you'll have a professional partner and external HR assistant for your business at your disposal at any time.
• Loyalty and integrity should go both ways. Every agency you work with, whether it's the second, third, or fifth in line, aims to make a profit, and this is perfectly normal. In order to adhere to normal business ethics, it's important to have regulations that benefit both parties and do not lead the agency to mistreat candidates and already appointed employees in order to recoup some of its costs.

New Career Ltd. could propose such an innovative recruitment solution.

If you are interested in Hourly rate service, please send us a request or contact us for more information. 

Your can find more information about our services HERE.