Texas' oldest placement
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ECONOMICS OF PAYING OR NOT PAYING A RECRUITING FEE

TO PAY or NOT TO PAY

No company should pay a recruiting fee needlessly. It would be ridiculous for a compan to pay for any service it didn't need. Any company that paid recruiting fees or any service fee for that matter, when they didn't need to wouldn't be around as a company very long for anyone to do business with.

So often, we hear that firms don't want to pay a fee. We understand. None of us likes paying a lawyer or a doctor or an accountant... unless they do for us what we can't. You see, we CAN do our own legal work, our own medical work, and our own auditing and reporting. We don't because we are in other businesses, providing goods and services. We don't have the TIME to go to law school, medical, or accounting school, so we pay for the expertise of someone else in these areas.

A recruiting fee is no different. Companies can do their own recruiting i.e., researching the market for qualified candidates, soliciting of these qualified candidates, interviewing and hiring. They can do this without a professional recruiter or a fee. Most companies, however, never calculate the economics of the TIME involved and LOST in the recruiting of qualified candidates. The major reason for this is that the process is underestimated time wise. Most people perceive that when they need to fill a position (without a recruiter), they will run an ad, talk to friends, interview a few candidates, and then hire one. They estimate it to take a period of 2 or 3 weeks until it happens. They never consider that the first offer may be rejected and they will have to start all over.

TIME is MONEY

In reality, without the use of a recruiter, it takes an average of 10 to 11 weeks to identify a qualified candidate to fill a search, even before an offer is made. Without the use of a recruiter approximately, 50% of the initial offers made are rejected, and the search has to start all over. Since so much time has elapsed from the beginning of the search, most of the other qualified candidates are either gone or are no longer interested. So the search really does start all over... from scratch!

A recent study by an experienced expert in the recruiting profession has statistically documented that a $60,000 executive spends $12,355 of his company's money to locate a qualified candidate at a $40,000 level (without the use of a recruiter). That's just to locate the candidate. Since 50% of those types of initial offers are rejected, this figure may even be higher, possibly double. It takes approximately 67.8 hours to review 200 resumes resulting from an ad, prescreen 100 resumes, pre-qualify 30 resumes after deleting 70, delete 15 of the ones left and complete reference checks on those. A $60,000 manager has a net worth of $144 per hour to his firm. The 67.9 hours at a net worth of $144 comes to $9763. This is an initial investment even before interviewing any candidates.

If five candidates are being considered, another eighteen hours will be spent in interviewing, eliminating and re-interviewing the finalists. The total investment so far, then is $12,355 PLUS the cost of the ad. Since without the use of a recruiter, 59% of all initial offers are rejected, there is still a high probability that one would have to start, if not all over, at least at "square" two.

Over the last two years, it has taken us an average of 17 days to successfully complete a search with a hire. It comes as a surprise, but the average time to successfully hire a candidate without a recruiter is around 77 days. Now in most cases, someone has to do the work of the person not hired yet. A $40,000 professional is worth $96 an hour to his or her company. Someone has to do the work of the person not there. That extra 60 days it takes to find a successful candidate (without a recruiter) COSTS money ($768 to be exact). So now we have $12,355 plus the cost of advertising, plus $768 per day that "someone" has to cover the work (that is another $46,080).

The recruitment fee for a $40,000 executive at Babich & Associates is $12,000. Not only is this a sizable savings, but also the probability of the initial offer being accepted is twice as great.

THE REAL SAVINGS

In addition to all of the savings, a recruiter saves money on down time. Over the past 2 years, the average search through Babich & Associates took 2-1/2 weeks to complete. By using a recruiter, the initial time devoted to running ads or collecting resumes was eliminated since we constantly work current candidates. Approximately 94% of the offers made thru a recruiter are accepted (we discuss the reasons for this in another issue of Hiring Line) and there is little risk of the search having to start over. If things go wrong, i.e., the primary candidate takes another job, the position specifications change slightly, etc., the professional recruiter is in a much better position to react quickly and the time of the "start over" process is shortened drastically.

The economics of paying or not paying a recruiting fee are clear. If a firm can keep from paying a fee, while getting the same quality of candidates in an efficient timely fashion and successfully hire one, they should not consider the use of a recruiter. However, it is a rare instance that a successful search cannot be more efficient in TIME, MONEY and EFFORT by the paying of a fee to an experienced recruiting firm.

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