How Recruiters and Headhunters make their Money
Many companies today leverage recruiters to achieve the staffing needs of their organizations. It’s the recruiter’s responsibility to figure out what the company needs in terms of staff and striving to develop a robust team capable of adding value to the company.
Still, working as a recruiter can be an arduous task which many people cannot comprehend. In this article, we seek to establish how recruiters and headhunters make their money. We shall also discuss:
- The recruiter commission structure
- Figure out how much headhunters earn on average, and
- Find out how recruitment agencies make their money
How Do Recruitment Agencies Earn Money
If you opine that recruitment agencies exist just to make money you may want to change your mindset. Why is this? You may ask. It’s because working in a recruitment agency can be daunting as we’ve already mentioned above. Still, companies wouldn’t be existing if they made no profits. It’s worth mentioning that finding the ideal candidate for your needs is not an easy task.
This explains why many companies today opt to outsource their staffing needs to third-party recruitment companies. Still, entrepreneurs will want to know how much money the recruitment agency is bound to earn from the hiring company after a successful process.
Often, this is out of curiosity to establish whether or not they are parting with lots of money to pay the recruitment organizations
compared to their service delivery. If you as an entrepreneur is interested in establishing how do recruitment agencies earn money, you may want to stick around and find out the answer.
Recruitment Agencies can Make Money in Two Ways
There are two major ways through which recruiters can make money from hiring companies. However, there still are other ways of making money as a recruitment agency. The two ways are: from hourly and temporary rates, and from permanent placements.
How Recruitment Agencies make Money from Permanent Placements
If you have been in the job market for some time now, you understand what every job seeker wants. One of the main preferences of nearly all job seekers is a permanent placement. Assuming you have a company and are looking for new employees, you walk into a recruitment agency and highlight that you are focused on finding permanent employees.
How long do you think it’ll take you before you finally find your preferred candidate? One thing you must understand is: all recruitment agencies are excited to provide permanent work and they probably have many potential employees on their platform waiting for the right client. What this means is that it may take you shorter than you had anticipated time to find your permanent staff. Permanent placements also help recruitment companies to make money with ease.
How do Permanent Placements Work?
When hiring companies contact a recruitment agency, one of the first things in their discussion is the salary scale for the candidate. The agency then works with the proposed salary to calculate how much percentage from the salary they would charge the hiring company. For instance, many agencies will charge up to 20 percent of the salary. Still, many recruitment companies will charge anything between 10 to 15% of the permanent placement salaries.
How do Temporary Placements work?
Temporary placements can also be known as hourly placements. The recruitment companies will charge the hiring company an hourly rate but this depends on the terms and conditions of the contract. Of course, the hourly rate will be calculated depending on the amount of money the employee is making.
Recruitment agencies will also charge specific commissions to cover for the effort they have to make to find the right candidate. Let’s take the following example, a recruitment agency could make up to $20 per hour for a skilled candidate in any profession as the candidate makes approximately $18.
It’s important to understand that the agency earnings is inclusive of taxes, bank charges, and insurance costs. Therefore, the above figures shouldn’t fool you into thinking that the recruitment agency makes colossal amounts from temporary placements. Here are other ways through which recruitment agencies can earn.
Each company today is seeking for alternative options of maximizing profits and true to it many recruitment agencies will not only provide recruitment services, but they will diversify their services to include:
- Organizing employment preparation training workshops
- Preparing professional resumes for potential employees
- Preparing candidates for interviews
- Organizing team building training and activities, and
How to Develop a Recruiter Commission Structure
Recruitment commission structures attract massive attention from people who are interested in venturing in the recruitment agency industry. One thing that’s certain however is that more input breeds more output in recruitment.
If you are a recruitment agency entrepreneur searching for ways to modify your commission structure there are various factors you should consider. One thing you need to remember however is: commissions are not only paid to consultants.
You can have a good strategy to ensure that all employees get commissions depending on their efforts and accomplishments. The tips below will help you establish the right recruitment commission structures for your company needs.
Decide Whether or not to Include Commissions to Regular pay
Recruitment agencies have different policies. While some will give commissions on top of an assured base rate, others will give commission only compensation. It goes without saying that recruiters who are on a commission only wage rate will get varying salaries each month depending on the number of candidates they recruit. Recruiters working on a commission only compensation often work harder in order to earn more money.
Choose Between Flat Rate and Percentage
When it comes to compensations, you may decide to pay your recruitment agency employees on flat or percentage commissions. Here, you can either give them a fixed amount or a certain percentage of the entire recruitment fee. Determine your commission rate before developing your structure.
You may want to hold discussions with the agency recruiters to give them an overview of the commission prior to prolonging a job offer. Your preferred commission rate should be depended on the recruiter’s compensation terms.
Choose a Commission Cap where Necessary
When you choose a commission cap, be sure to pick a reasonable limit. This too shall depend on your preferred compensation method. Be sure to choose a time frame for the commission cap which can either be an annual or monthly cap.
Decide when to Offer Commissions
Knowing when to give commissions is a critical stage of your recruiter commission structure. Overall, recruiters who receive commission only wages are paid per placement. Still, agency recruiters can receive commissions in various ways such as:
- The number of placements achieved
- Placement fee, and
- The average time is taken to fill a position
For instance, you can adopt a policy whereby the recruiters are paid once they achieve a specific number of placements per month.
Understanding Headhunter Companies?
Usually, headhunter companies operate on behalf of outsourced recruitment agencies. Many times they will open positions that need to be filled urgently. While these companies can access less publicized roles the hiring company should be prepared to do due diligence to establish the capability of the candidates they are offered. Headhunters are easy to locate and a quick search on popular search engines is certain to give you various options to choose from.
What’s a Headhunter’s Salary on Average?
Often, headhunters are compensated depending on the number of jobs the fill for the hiring companies. The average headhunter salary in the year 2013 was $75,000. You must have a bachelor’s degree in human resources of business to work as a headhunter. Having worked for the human resource department in a corporate company would be an added advantage.
The downside of Using Recruitment Agencies
Recruitment agencies are becoming popular by the day. Whether you choose to use them or not, understanding these cons will help you in the future.
Recruitment agencies don’t come cheap. Many recruitment agencies will charge up to 30% of employees annual wages. Further, the recruitment agency fee is likely to increase especially when you are looking to fill a difficult to fill role. Still, you will need to pay a fixed charge to the recruitment agency whenever you make a hire.
Deficient Employer Branding
Using recruitment agencies will deny you a chance to develop an employer branding concept for your company. Doing the recruitment process in-house goes a long way in promoting, presenting, and formulating your company’s reputation as an ideal employer.
Failure to Prove Cultural Fitness
Recruitment agencies are unable to prove the cultural fitness of their proposed candidates. While they can provide excellent candidates who are best tailored for specific roles, they don’t perform as well when it comes to evaluating cultural fit.
While recruitment agencies will assist you to choose the best candidate to fill your position, your team and office culture could be plunged in jeopardy. Still, there are some good recruitment agencies who will strive to understand your organization’s mission, goals, values, and vision. These are best placed to give you the ideal candidate for your needs.
Whether or not you should utilize a recruitment agency depends on your hiring resources and needs. If you finally decide an agency is ideal for your company needs, you will want to research widely in order to choose the best provider.