Dear TFL

Dear TFL:

In your Sept issue you talked about Fee Schedules.I work on a 25% contingency fee schedule with a 30-day replacement guarantee. I am losing some business because our fees are too high. I want to give them an alternative. Say, a flat fee at 23% or a 23% engagement fee.

We are getting companies with 8, 9 10, 15, 20 employees who want to use recruiters. But when I say 25% the run away. I can live with that; have been doing it for 15 years or more. But I feel I am losing something. They go with alocal company with 20% contingency that doesn’t work in my specialty. I feel I could sell my company at 23%. But I feel if I reduce my fee, theyhave to give something. It should not be one-sided negotiations.

I feel comfortable with both. The flat fee would be 3 equal payments. Ihave the paper work on the engagement fee. 1/4 down balance paid later on acontingency. What do you think?

Dear Readers:

We are not big advocates of cutting fees just because some one of your competitors is willing to do so. The proof is in the pudding. Do they really produce or are they just adding to their job order inventory with no reasonable chance for producing the best candidates? Our November issue touched on this and one of our correspondents wittingly said, “Every recruiter needs to remember that a job order is nothing more than a license to lose money.”

The major problem with fees in general is the total misperception on the part of employers. Given the choice between 25% and 20%, guess which will prevail in the absence of a compelling argument. Offer 20% and you will find someone who will offer 15%.

Employers need a reason to accept a reasonable fee and they need to know that what they’re getting is as a result of some thought on your part as to the degree of difficulty in filling their needs. The best approach is Bob Marshall’s Pricing Matrix. You might even wish to share it with employers when negotiating the fee level since it lets them know that you’re not just pulling a number out of the air. (For a copy of the Pricing Matrix, Email your request to TheFordyceLetter@aol.com with a subject line of “Pricing Matrix.”

We have no major problem with flat fees except that they work best for a retained deal. Several readers have experimented with the following flat rate methodology:

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$40 – 44,999 $12,750

$45 – 49,999 $14,250

$50 – 54,999 $15,750

You get the idea. This paradigm computes the flat fee on the midpoint.

When working with the smaller firms, there are times when you may need to soften the blow by stretching out the payments to accommodate their iffy cash flow but an inability to pay is no reason to demean your expertise and abilities in solving their problem which, incidentally, is more critical than for the larger firms with some bench strength.

Paul Hawkinson is the editor of The Fordyce Letter, a publication for third-party recruiters that's part of ERE Media. He entered the personnel consulting industry in the late 1950's and began publishing for the industry in the 1970's. During his tenure as a practitioner, he personally billed over $5 million in both contingency and retainer assignments. He formed the Kimberly Organization and purchased The Fordyce Letter in 1980.

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