How to Negotiate Recruitment Agency Fees
The negotiation of fees and rates is an inevitable part of your job as a recruiter. And, if you’re not careful, a client can negotiate your fee down to a pitifully low rate. The right negotiation tactics affect not only your earnings but also the level of service that your clients receive. Let’s be honest: if a client drills you down to a pitifully low rate, you’re unlikely to be motivated to go the extra mile for them. This means, the client will not be super happy with you and won’t be likely to come back for your services anytime soon, leaving you to find more clients again without a plan B. It’s a vicious cycle that you don’t want to get into!
Also check, our complete guide to full-cycle recruiting
We know negotiation can be tricky. We’ve laid out 7 tips that will help you handle negotiations with confidence, and reach outcomes that will mutually benefit you and your clients. and never comprise on your worth.
1. Convert the conversation of discounts to something else
A lot of times, when a client asks for a discount, it’s an opportunity to convert that conversation into your engagement with the client. You need to understand why the client is asking for a discount in the first place and see how you can make a win-win deal out of it. For example, if you are working contingent with a client, you can give them a discount and ask for an exclusive or a container agreement with your agency. If you are using a recruiting CRM like Recruiterflow, you can even give value add by using your ATS to maintain transparency and collaborate together on the search.
Check out how Recruiterflow’s client portal works in the video below.
2. Equip yourself with the right information
The first step in successfully negotiating fees and rates is to know your market and to be properly equipped with the right information. This includes:
- The typical recruitment agency fees in your geographic area and in your specific niche
- The typical fees that your competitors are charging. These are competitors that you frequently come across and lose and win deals against them regularly.
- The resources (time and money) needed to win the client and win the placement These resources may include recruiting software for your agency, sourcers that you may hire, sourcing tools like a LinkedIn recruiter, and other resources.
It also helps to research and be prepared with specific information pertaining to your client. The more specific information you have, the better your ability to help them understand the value of what you deliver.
Also, check How To Choose The Best Recruitment Software For Agencies?
This may include:
- The type of candidate the client needs.
- The timeframe that they need to fill the role within.
- The impact on their business if the role remains unfilled.
- How senior the opening is.
- How easy or difficult it is to find the right candidates in the market
- Alternatives are available to the client.
- If they have tried another recruiter or any other method to fill the role and why it failed.
- Would the hiring manager miss her targets or KPI if she fails to make this hire?
Few clients will admit during a negotiation that they desperately need someone. They know that this information strengthens your position and weakens theirs. Take into consideration the information they may have previously given you – such as from a job spec – or information gathered from other sources. For example, you might know from speaking to other candidates that the client has been trying to fill the job for months.
Before you talk to your client about your fee, you need to determine your bottom line. (i.e- the minimum amount you are willing to accept) You should work out the value of your services and time, and determine a number that will still let you turn a profit. If the client negotiates lower than you can afford to go, it might be best to walk away from this job order.
Also, check our blog on the recruitment commission structure.
In order for a client to see a rate as acceptable, they need to see that the cost of using your service is less than the cost of not using it. In this context, the cost would not just mean money but also time, effort, and convenience.
The most effective way to demonstrate this value will depend on your client’s circumstances and the more relevant your arguments are to them, the more effective they will be.
3. Articulate your value proposition
Every recruiter delivers the same pitch about how they will save the client time and money, or how they have been operating in the industry for x years and have a great network. Almost every recruiter is pitching pretty much the same thing. To truly set yourself apart, you need to sell what truly makes you different and demonstrate what you do, how you do it, and how this benefits them. One of the main reasons clients try to negotiate fees is that they don’t perceive value in what you do and what you can deliver for them. It’s important to provide them with a recruiting sales pitch, go through your entire recruitment process, and explain all the things that you do to secure the right person for your client.
Your sourcing capability:
Being in recruitment, you have access to a database stored in the ATS of your recruiting agency that may have taken several years to develop. This database is your bargaining chip. Not only are clients paying for your time and expertise, but they’re also paying for this.
Clients may take weeks, months even, to find what they’re looking for. But you talk to candidates all day, every day, and are in constant touch with the market. You can give clients access to candidates that they would not be able to source themselves, source them at a short notice, and may even be able to have a candidate confirmed to start work in less time than it would take a client to write an advert. The relationships that you’ve cultivated give you access to recruiting passive candidates that your client would never be able to reach on their own.
Your experience in the market and understanding of client’s business gives you an innate ability to understand the role beyond the job description. You are able to read between the lines of what your hiring manager is communicating and not communicating to get understand who the perfect candidate is for the role and you can present a few options to them in a matter of weeks. That’s what you can bring to the table.
All the client has to do is brief you on the role, and turn up to interview candidates. The time they save by you sourcing candidates for them is time that they can spend on other work. Essentially what you are selling is access to the candidates that they don’t have or it will cost them way too much to have!
Your screening ability:
You know how to assess not only what a candidate can do, but also what they want to do. Your client doesn’t have to spend time reviewing or interviewing applicants who won’t want the job. You screen multiple candidates every week and are experienced at qualifying candidates’ motivations and identifying their strengths and weaknesses. You can also identify candidates who may be good for a role that your client may not have otherwise considered.
A client may not have this experience and will waste time with unsuitable applicants.
Moreover, candidates are more open with recruiters than they are with prospective employers. You can give clients insights that they would not be able to get on their own, and information about any other opportunities a candidate is pursuing, giving them the advantage of knowing what their competition is.
Your ability to present opportunities:
As you are in constant touch with the market, you can advise the client on salaries and how hard or easy it is to find the candidates that they want. This helps both clients make appropriate offers and helps candidates make informed decisions. It reduces the chance of offers being rejected, and the client’s time is wasted.
Strong candidates often have their choice of employers, and you can help to promote the client’s business to them without expensive ad campaigns. Small or new companies that are not well known can especially benefit from you persuading candidates to consider their opportunities.
Few candidates like negotiating a rate/salary directly with clients. They might reject an offer rather than negotiate or accept an offer they’re dissatisfied with, making a short tenure likely. Candidates are more likely to enter negotiations – and reach a mutually satisfying result – if a recruiter is there to negotiate on their behalf.
4. Demonstrate the cost of not using your services
More often than not, there is a massive opportunity cost associated with delaying a hire, especially if you are hiring someone critical or senior. This opportunity cost for the client is far more than what they are paying you and your job is to make them realize that.
Recruitment is a full-time job. If a client spends their (or their colleagues’) time on recruitment, they have less time available for the rest of their work.
A client who spends their time (and therefore money) on recruiting has no guarantee of a result. Also, if you are working contingent, they pay you only if you succeed!
Recruitment markets move quickly, and suitable applicants may find other employment if a client takes too long to process their application. There are only 24 hours in a day. If your client is running on a tight deadline, recruiting will take up a sizable chunk of their day where everything else suffers. You are there so that they don’t have to waste their time with everything else and straight get to talk to some great qualified candidates for the role.
A client who relies on an advert to source applicants has no guarantee of any return on their investment. In many instances, unfilled permanent positions may have to be covered by contractors. This incurs an extra cost as well as extra work for the hiring manager, making their work and reputation suffer if they struggle to hire people and/or cover the empty position.
5. Use real figures
Clients and recruiters can become so focused on achieving certain percentages that they forget the actual sums of money involved. Using real figures brings a sense of perspective to negotiations and helps both parties to make objective decisions. However, you need to be mindful of when this approach is effective. This approach is effective when you’ve already established yourself as a trusted resource that will solve the problem for them. If not, this approach might just backfire.
Consider how the actual monetary difference between what you want to charge and what the client wants to pay compares to the costs incurred if the role remains unfilled. Is the amount in question worth losing the placement over, for both parties?
If you are at the beginning of a non-retained recruitment process, remind the client that they don’t pay anything until you find the right person for them.
If you are negotiating a permanent rate and the client has used or may have to use contractors to cover the unfilled role, compare the cost of the contractors to the actual difference between what you want to charge and what the client wants to pay. You could tell the client something like this:
I understand the fee is $3,000 above your budget, but let’s say you don’t offer this candidate the role and it remains unfilled. If you end up hiring a contractor to cover the work, it will cost around $800 a day. Spending an extra $3,000 now gets the job filled and costs a lot less than hiring a contractor.
6. Know your numbers:
Some clients (and recruiters!) think discounts are much smaller than they actually are because they don’t understand the math involved.
For example, a client who asks you to drop your fee or margin from
20% to 15% isn’t asking for a 5% reduction, they are asking for a 25% reduction: your invoice will be 25% less at 15% than it would be at 20%.
Similarly, reducing a 30% fee to 15% means slicing your fee in half and giving the client a 50% discount, not a 15% discount.
Using the correct figures is an effective way of showing clients that they have negotiated a good deal. The following two examples offer the client exactly the same discount but one sounds far more attractive than the other.
A) I am confident we can provide the person you need. If you are happy to work with us over the next three months, I am happy to reduce our usual margin from 25% to 20%.
B) I am confident we can provide the people you need. If you are happy to work with us over the next three months, I am happy to offer you a 20% reduction on our usual 25% margin.
When you use the phrasing in the latter example, it gives the client a clear idea about the extent of the discount that is being extended to them.
This also allows you to put the onus of justifying the discount on the client. You could then say “We have been transparent with our rate since the beginning of the process, and you’ve been happy with our service and the candidates we have presented. May I ask why you think a 40% reduction is warranted?”
7. Offer a gesture of goodwill
A gesture of goodwill – or a sense that the client has negotiated a discount is sometimes all they need to reach an agreement. Some alternatives to slicing a percentage from your rate/fee could be:
- An introductory rate for a mid-/long-term contractor that increases after an agreed trial period. This may entice a client to hire a contractor they think is too expensive, and gives the contractor the chance to prove their worth.
- A flat fee rather than a percentage of the final salary can help clients to control their budgets. Both parties can clearly see what the final figure will be.
- Incentivize the client to work with you and test their claims for future business by suggesting a sliding scale. The more placements made, the lower the fee/rate.
In negotiating deals with clients, important that you don’t get too caught up in the idea of ‘winning’ an argument. Sometimes a small discount may be enough to satisfy a client and close a mutually beneficial deal.
