How Do Recruitment Agencies Work? Answers on ROI

By |2019-01-29T03:39:14+00:00February 25th, 2016|Staffing Articles|

The Keys to Recruiting Agencies ROI

We thought we would talk a little bit about recruitment ROI.

“I have a ton of agencies at 15%, why pay full fee”, “We can’t afford fees”, “We have many applicants in our database” – Those are the reasons we hear about WHY NOT to use an agency – Yet in this day of easy electronic access to names how does the recruitment business continue to thrive?

Understanding the Return On Investment for utilizing a recruitment firm starts with understanding the costs of a hire and an empty desk. We can look at “cost to hire” including training, agency fees, staff time for sourcing, reading, and reviewing resumes. Time to fill including opportunity cost of an empty desk. These are traditional factors. Additional factors, perhaps not conventionally considered would include the long term cost of hiring the wrong employee, as well as quality of hire.

Recent changes in the hiring landscape: Lower unemployment rates but economic uncertainty have sapped many people’s desires to risk a move – There are more “passive” candidates who are more difficult to find and to move – The hidden result of this is that many firms are making unsatisfactory hires or have extreme wait times to fill their vacancies. The lower unemployment rates and incumbent firms realization that retention is a critical part of their staffing agenda means fewer candidates are moving solely for better pay.

Businesses and agencies must be aligned in the goals of the hiring firm. According to The Aberdeen Group, firms consider Quality of Hire as top priority. This is followed by time to productivity, how many vacancies and finally Time to Hire when evaluating their process.

recruiting ROI

Questions regarding proper fee structure abound. “Normal” fees rand from 25-35% with higher fees associated with retained or executive hires and fees from 15 (unusual) to 20% considered discounted. Contingent agencies work for free! Costs are high, client entertainment, job posting and board fees, average recruiter earnings in the six figures, phones, computers, job fairs and networking events and turnover are all accounted for. Most agencies return an EBITDA of 8-10% compared to 15% for the S&P 500. Consider a 25% fee against an average IT salary of $85,000 – $21,500. According to Indeed.com, nearly $160B is the annual potential value of unfilled job opportunities in the U.S. with 50% of that cost attributed to unearned profits! Average job remains open 3 months. Consider the time/productivity lost by your teams for reviewing unnecessary resumes, team interviews with the working candidates and the costs are staggering. Back to fees: Most quality, established agencies/recruiters will not consider discounted fees under normal circumstances. These are the agencies with established pools of resources, industry experienced recruiters, quality control practices and more. The savings associated with agency partnership are greatly diminished by use of a discount agency and the motivation of commissioned recruiters is also lessened.

A proper Partnership with a contingent or retained agency has great returns for your firm. Recruiters have extensive networks that transcend the vapid career board offerings. A quality agency, armed with insights above and beyond the written description can save many hours of useless resume reading and interviewing… Each BAD interview can cost days of people/hours in lost productivity – Time to hire can be greatly reduced because recruiters have access to candidates not ‘in the market’. Targeted searches – profiles narrowed to specific companies, industries, and positions increase the success of both Quality Hires and Reduced time to productivity.

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