May

How much does it cost to use a retained search firm?

by Steven Stewart
Vice President at Charles Aris Inc.

In talks with prospective clients about whether retained search is the right recruiting solution for them, the question of cost invariably arises.

Earlier in my recruiting career, I would bristle a bit when this was the first question the client would ask.

“Whoa,” I’d want to tell them. “Don’t you want to know how our process is better than the other guys’? Aren’t you curious to know which Fortune 500 clients and top-tier private equity firms rely on us for their most critical hiring needs? Let me blow your socks off first, and then I’m happy to discuss our fee structure!”

Looking back, I’m not sure how I ever made it through those early years. Today, I’d rather hear that question right out of the gate; in fact, I can’t wait to explain to anyone who will listen exactly how our fees work. After all, if it’s important to them, it’s important to me. Suffice it to say, if you’ve ever wondered how much it costs to use a retained search firm, you’ve come to the right place.

Let’s first break down the different types of search typically found across the recruiting industry:

  1. fully retained
  2. partially retained
  3. non-retained

Fully retained search: The fee for fully retained recruiting services is usually 33 to 35 percent of the successful candidate’s first-year package. Typically, that first-year package includes base salary plus annual target bonus plus sign-on bonus – and sometimes factors in an equity component as well as ongoing administrative fees. The first third of that fee is due on Day One, the second third is due on Day 30, and the final third is due on Day 90.

Partially retained search: The fee is typically 28 to 33 percent of the successful candidate’s first-year cash compensation. Generally, that first-year cash compensation includes base salary plus annual target bonus. Sign-on bonuses and equity usually aren’t factored into the fee, but every firm handles this differently, so it’s important to have that discussion with your search partner. Like the fully retained search model, a third of the fee is due on Day One. Unlike the fully retained model, the remaining two-thirds of the fee isn’t due until the candidate has accepted your offer – which means the firm may be even more motivated to be successful for you. This “shared risk” approach has gained momentum in recent years.

Non-retained search: In this model, also known as contingency search, the fee is typically 15 to 28 percent of the successful candidate’s first-year salary. The search can be assigned to multiple firms, but only the firm that produces the winning candidate earns the fee. This is a great model for roles for which there is an abundance of talent and recruiting qualified, available and interested candidates isn’t particularly complex.

Bottom line? Cost is but one factor in deciding which search firm to use. There are pros and cons to all three of these models, and there is no one-size-fits-all solution for every role that an organization is looking to fill.