We previously covered when to hire a recruitment agency to complement internal recruiting resources and how to select the right partner for your needs. Today’s focus is on the best engagement and fee model after you have selected the ideal partner. The two most used engagement/fee models are Contingency Search and Retained Search.
Contingency search means that the agency only gets paid after the search is successfully completed and the right candidate is hired for the job. In other words, the fees of the agency are contingent upon success. Retained search on the other hand is a model where you pay a portion of the fees upfront to exclusively hire i.e. “retain the services” of an agency. Sounds simple enough at the surface but let’s go deeper into each model and look at the advantages and disadvantages of each one.
Under the contingency model, your incentives are 100% aligned with the agency’s – they are motivated to find candidates fast to earn their fee! You don’t take any financial risk upfront, you don’t need to decide on a single agency, and you can easily add or subtract recruiting resources. This model can be particularly useful when trying out a new unproven firm or if you are new to using external resources for recruiting.
As you can imagine, there are some downsides as well. First, this strategy doesn’t work with niche or executive hiring where the total talent pool is smaller, and you need access to an elite recruiter who can access that pool. Secondly, agencies can only afford to spend a limited amount of time on a contingent search. They have real costs on their end and may silently focus on clients that show more commitment or are easier to hire for. Lastly, it is usually hard to retain high interest from contingency firms if your brief or interview process changes several times. Because of the diffusion of responsibility, no one recruiter may spend the time the role needs to find the right candidate.
Because of the diffusion of responsibility in Contingency Search, no one recruiter/agency may spend the time the role needs to find the right candidate
Under the Retained Search model, you pay some fees upfront and the rest of the payments are milestone based. A typical model is a third of the fees upfront, a third on hitting a time or progress milestone and the remainder when the candidate is hired. The price is also typically higher than Contingency Search. You might be thinking – it costs more and there is more risk with upfront payment – why would I ever go down this path?
There are several reasons to consider a Retained Search:
- By paying some fees upfront, you signal commitment to the agency. This in return gets you more dedicated resources, a deeper partnership and an ability to hold the agency’s feet to the fire!
- If a role’s requirements or interview process changes, you don’t have to manage and brief several different partners. You are also guaranteed that your chosen agency will keep working the role.
- Working exclusively with one agency, allows the agency to go deeper and reach out to passive candidates who might be a better fit instead of rushing to find and submit resumes to earn the fee while competing with other agencies.
For these reasons, Retained Searches almost always deliver better results.
Retained Search is the best way to guarantee results and the only model for executive hiring
A new model arises – Container Search
As you can see, there are advantages to both the contingency and retained models. A new hybrid model has emerged in recent years called Container Search (a portmanteau of Contingency and Retainer) that aims to offer the best of both worlds! In a Container Search, the client pays a non-refundable deposit (typically $5,000-$15,000) with the remainder of the fee only due if & when the candidate is hired.
Clients have some “skin in the game” which makes them more active participants in the recruiting process and recruiting agencies can be confident that their time spent on a search will generate returns and so can apply more time and resources to it. This shared risk model, contributes to a higher chance of success than Contingency Search with a lower financial outlay and lower risk compared to a full Retained Search.
This shared risk model in Container Search, contributes to a higher chance of success than Contingency Search with a lower financial outlay compared to a Retained Search.
Here is a summary of the pros and cons of each model
- Risk free
- Can work with multiple agencies
- Easy to fire non performing agencies
- No guarantee of attention from agencies
- No accountability for delivery
- Significant time effort to manage agencies
- Individualized attention
- Guaranteed results
- Long guarantee period for placed candidates
- Have to choose a single agency
- Fees due even if candidate applied directly or internal referral
- Generally most expensive option
- Can engage an agency in addition to internal team/referrals
- Consultative approach similar to a retained search
- Cheaper than fully retained search
- Non-refundable fees due upfront
- Expensive to engage multiple agencies in this model
- Results not guaranteed unlike retained search
In conclusion, the right fee and engagement model depends on the role, the urgency and your budget. Still not sure which fee structure makes the most sense for your particular challenge? Feel free to email us (email@example.com) with any questions - we work across all models depending the function and seniority of the search.
Rocket pairs talented recruiters with advanced AI to help companies hit their hiring goals. Rocket is headquartered in the heart of Silicon Valley but has recruiters all over the US & Canada serving the needs of our growing client base across engineering, product management, data science and more.