Share this article:
A Five-Part Strategy to Raising Fees
So why is it that one search firm can only get a twenty percent fee and another can get a thirty percent fee? Why is it that one can get fifty percent more margin when they are in the same profession, talk to the same candidates, and follow the same process of recruitment? (recruit, present, interview prep, interview, debrief, reference check, close, resignation prep, follow up).
First, you have to understand exactly what we are talking about and the full impact of doing this. If you charge twenty percent and raise your fees to twenty-five percent, you arenít adding five percent more margin to your bottom line. You are adding a twenty-five percent increase (one fourth) of margin to your profitability. If you go from twenty percent to thirty, it isnít a ten percent increase in your margin. Itís a FIFTY percent increase. Want to get fifty percent more profitability? Then go from twenty percent fees to thirty.
I remember once attending a training session where the trainer said, ďJust raise your fees! Just do it now!Ē Any sort of change, especially changing the pricing structure of a business model, has to be done with a certain degree of planning and thought and strategy. You canít just raise them after attending a rah-rah motivational session without making preparations for the ripples to occur once you start making waves among your client base.
If you want to raise fees effectively, you have to follow this five-part strategy.
- First, you have to believe your fees are worth it. Iíll never forget the time I first started believing in the value of what I was doing. I recently placed a candidate with a good client. He was a project manager with a competing electrical contractor and he was making $80,000 and managed electrical projects around the $3 million range. Because he was an effective manager, he was able to squeeze out gross profits of up to twenty percent, around $600,000. My client, who had become a good friend, was giving me a hard time about having to pay me another fee. When I contrasted the fact that he was getting the better end of the deal by a factor of thirty, I immediately saw how, from a clientís perspective, our fees are small in comparison to the value they receive. Today this same candidate is the president of one of their large divisions. When you place exceptional people, you can confidently believe that your twenty or thirty thousand dollar fee is small compared to the value your client receives. Wealth is a transference of value. The value you offer has to be equal or greater to the value paid by your client.
- Second, you have to understand what business you are really in. Do you place people in jobs? Or do you solve problems for clients by placing exceptional candidates? This fundamental question is what drives every search firm or staffing agency. Each week I am in at least one or two offices of firms somewhere in the country (sometimes as many as three firms in a week) so Iíve seen lots of different models, lots of different ways of doing business, and lots of paradigms about how people perceive their businesses. If you think you are just a placement agency, then your value is looking at the immediate result you provide, filling a position with a candidate. If you see yourself as a partner with client organizations to advance them and expand their margins through the placement of exceptional talent, then you are viewing your business from a consultative perspective and truly understand the full scope of what you do all day as a recruiter. When you get to this point, then you will begin to believe in the full value of what you offer. And then you can start thinking about raising fees.
- You have to be smart about it. Is your market shrinking? Are there fewer and fewer client prospects to pull from? Or are you in a growth market in a growth time of your niche? Your primary obligation is to stay in business. Donít sacrifice your livelihood because of your ego. Be smart about it. If you have concerns about the market because of economic shifts, then hold off on making major changes to your model. Not only that, but you have to understand the accepted norms of search and placement fees in your niche. If no one else has fees higher than twenty-five percent, then it will be hard to change the mind-set of an entire industry.
- You need deal flow and cash flow. You canít negotiate from a position of strength if you are struggling to stay in business. If you donít have the volume of deal flow, if your funnel isnít completely full, and if you donít have money in the bank to cover you through lean times, then this isnít the time to start raising fees. Set a goal in place. Set a twelve month goal. How much money do you need to cover you if you have two loser quarters? How much activity do you need on a consistent basis to feel comfortable to start turning business away? Once you know this, then create a twelve or eighteen month strategy.
- Create a deliberate and intentional strategy. Letís just say that the time is right to start raising fees. Start doing it with new client prospects. Practice with your colleagues in the office with a template of word tracks and then start with people who youíve never talked with before that you can afford to lose as clients. Once that works, then you can decide what to do with your existing book of business. The key to everything is the flow of business you have and the margins you get from it. You need to have a pipeline of business coming in to your office on a regular basis to start doing this. Thatís the biggest problem Iíve seen with people that raise their fees too early.
Remember that raising fees is a specific process that has to be planned out and carefully implemented into your model. But once you do it, youíll see first-hand the full value of what you offer your clients: you donít just place people, you solve their biggest problems by placing people. And at that point youíll truly understand what business you are really in.
- Scott Love
Scott Love improves recruiter performance by getting recruiters to think at a higher level, to develop a better strategy, to master recruiting tactics, and to develop better work habits. He has created a simple step-by-step system of recruiting success that is replicable. Over 2,000 search firms and staffing agencies have invested in his training products, seminars, videos, books and consulting. Visit his website for free videos, training tools, quizzes, instruments, and articles at www.recruitingmastery.com.
Copyright © 2008 Scott Love