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December 15, 2017

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Three Steps to Raising Fees

When I first joined the recruiting business in 1995, there was a fellow named Patrick in the cubicle next to me who kept saying over and over again, "Man, I canít believe a company will pay me such a big fee to place someone. I just canít believe it. I just canít."

He didnít make it very long in the business. He couldnít believe that a company would pay him such a big fee to place someone. He just couldnít believe it. He just couldnít.

My mentor and coach is Alan Weiss, one of the top-ranked management consultants in the country who has authored over twenty-one business books and consults to blue chip companies internationally. He says that the biggest issue that most consultants must deal with is that they donít believe they are worth what they charge. In the management consulting arena, he has actually adopted a fee pricing method similar to the model used in executive search: getting paid based on the value of his contribution. Search consultants charge based on the contribution to our clients, a percentage of the salary of the employee. The higher the salary, the higher the fee since high-salaried people are assumed to provide more value in the clientís organization. When Alan instructs a mentee to charge based on the value instead of an hourly or daily rate, some of the consultants have a hard time believing that they are providing value commensurate with the fee. And thatís where their success derails. Because their belief in their value doesnít jive with what they are charging, they are doomed for failure.

Are you there yet? Have you arrived at the place where you actually believe your fee is worth what you do as a recruiter? If not then your clients will sense it and will ask for discounts. One of my training and consulting clients is a staffing firm that I worked with to help them raise their fees from 20 percent and so far we are up to 25 percent, giving them a 20 percent increase in their net profit just in this one area. They believe in the value of what they provide for their clients, so they are able to win clients over to the higher fee. Plus, they followed the proper formula for raising fees so itís working for them. If you want to raise your fees, there are three steps you need to follow:

  1. Believe that you are worth it. Who is getting the better deal? It must be the client. If you place slugs, then you canít charge a high fee. If you are going to settle on candidates then higher fees arenít in your future. It just makes economic sense: sharp and sophisticated clients will never pay more for your service if they can get a similar end result from your competitor. If you provide the same types and the same level of candidates as every other recruiter, then youíll have a hard time selling a higher fee to a client. You need to identify your value, perceived or real, find out how that value benefits the economic buyer on a personal and emotional level, and learn to articulate it in your sales presentation. Practice it. Memorize it. Make it a habit so it just rolls off the tongue. And believe in it. Once you start believing that you are different and you do make more of a difference, then you will believe it yourself that you are worth a higher fee. And if you believe it, then so will your clients.

  2. Get strong deal-flow. Itís tough to raise fees when you need another search. If you donít have searches coming in like an over-flowing river, then itís not time to raise fees. Once you have more than enough and your pipeline is overflowing, then it is time to consider notching yourself up the fee spectrum.

  3. Get good cash-flow. Recruiters with bad cash flow who try to raise fees are very similar to a man being mugged on the street negotiating with the crook who is holding him up at gun point. Your odds of winning are slim. In the world of negotiation, whoever needs it the least always wins. If you really, really, really need the money, then you canít walk away from a prospective client when you tell that client that your fees are higher than your competitors. If you can afford to lose that search, then itís time to try to raise the fee.

Remember that every part of this business can be placed in a formula, or a system. And if you try to raise your fees by going outside of the system, then you will eventually find yourself outside of the business. Follow the formula and good luck on raising your fees.

- Scott Love

Copyright © 2005 Scott T. Love

Scott Love improves the performance of recruiters and the margins of search firms and staffing agencies. His training website, www.recruitingmastery.com, has become one of the largest free internet training sites for the industry. To have him show your staff how to produce more than they thought possible, call him at 828-225-7700.