Recruitment as a Service Gives More Options.

Competition within an industry exists because of options, different options. The Recruitment industry has no options right now. Recruitment as a Service from Schwarz & Vogel is tackling this issue head-on.

When there are no other viable options, customers face the exhausting reality that “problems are embedded into the fabric of the organization and are shielded behind the veil of, this is how we have always done things.” Full article from Industry Week here.

If there is no point in looking for an alternative, because one doesn’t exist, we tend to bow down. We stop looking for ways to change. Consuming bad services or products becomes normalized. Everyone has a story or two about ‘that company’ having the ‘worst customer service’ but consumption continues due to there being no other option.

TINA

Within the recruitment industry, it may not be a question of whether or not your business is solving the right problems, it may in fact be a question of TINA. What’s TINA? A well known financial acronym for the reason stocks is purchased when there seem to be no returns to be found elsewhere.

How does that translate to recruitment? All agencies across the globe use a retainer or contingency, pricing model. Contingency models charge around 20-40% of the annual salary of the role to be filled as a fee. The retainer model uses roughly the same %  for the fee but payments are broken down into different stages, relating to certain pieces of work being carried out.

Because all agencies across the world use the same models, there is nowhere for clients to go to try something new. They may be able to change agency if they’re not happy with the service or the coverage of candidates they receive for open roles. No matter how many times they may have changed, what they have not been able to change is the exposure to the exorbitant fees they have to pay.

Why are the fees so high?

There are three factors to consider here. There’s a bit of ‘that’s the way it is, there’s a lot of TINA, which means there is no price competition that naturally lowers fees. But the one big factor that leads to overheated pricing is a risk.

We’ve spoken about the first two already, so let’s tackle risk and how that leads to clients paying disconnected and crippling recruitment fees.

Companies that use recruitment agencies have long believed that having numerous agents on their PSL (Preferred Supplier List) will ensure they receive the best candidates. This is a fundamentally flawed idea, which we have covered in a separate article. Because most companies believe more is better in regards to recruitment, they have inadvertently created an issue of risk.

The risk is taken on by the old agencies. Being on a PSL with other agencies creates a situation that needs to be mitigated. That situation is not being the first to come to their client with a suitable candidate for an open role. How do they mitigate this risk? They charge eye-watering fees when they are first to the punch. These irrelevant fees cover the cost of the work done by consultants when they do not place a candidate because they were beaten by another agency on the PSL.

Recruitment as a Service: What does this look like in monetary terms?

Let’s use a Software Developer to run an example, with particular skills in Java. Let’s imagine the hiring company is located in Ireland and the role can be conducted remotely. On average, this type of role could attract a salary of around €74,000 per annum. Let’s say the agency fee is 20%. Upon placing this new Java Developer, the hiring company will pay the agency €14,800 for the privilege of using their service to introduce them to a new employee.

So let’s take the price being charged to the company, that being €14,800 and divide that by 12 hours. This is the estimated time a recruitment consultant could spend sourcing a candidate for this particular role. This will give us the cost of each hour of effort in regard to recruitment services delivered.

€1,233 per hour!

To find a Java Developer in 12 hours, the hourly rate would be €1,233 per hour. Let’s factor in some costs for the old agency like real estate, people and technology. We’ll be generous and imagine a very high-cost base of say 60% of turnover. This would mean that the profit from each hour of effort would be €439.20. Let’s remain focused on the customer, the €439.20 is irrelevant to them, it’s the €1,233 per hour that they have to pay.

Why is this important? Because agencies are pricing at risk. The risk of not placing a number of times before they are successful. Let’s imagine a recruitment consultant works on four client requirements, three unsuccessful and one successful. For simplicity, we’ll use the role explained above. We’ll also assume for the ease that each requirement took 12 hours of effort.

The total effort over the four client requirements is 48 hours. As the agency was only successful with one client requirement the revenue from that successful placement has to cover the other three failed placements, as the work was still done by the consultant, even though they didn’t place.  €14,800 / 48 = €308.33 per hour. Take out the 60% cost, and profit per hour would be €123.34. A grand total of €5,920.32 profit for a success rate of 1 in 4 placements.

It’s important to restate that the customer is not concerned about the agency’s cost base, they pay €14,800 for an introduction to a new employee. The old agencies are pricing in the risk and the customers are paying for it.

Recruitment as a Service

Put very simply, Recruitment as a Service from Schwarz & Vogel removes the risk that old agencies are pricing in. This means that our clients are saving up to 75% on the old agency fees they were paying before for one placement. The savings increase when using recruitment as a service to place for multiple roles simultaneously.

How do we do this?

Firstly, we do not charge a % of the annual salary as a fee. We use a simple hourly rate for the work we do on your recruitment project. We’ve priced out the risk built into old agency pricing by getting paid for the work we do whether we place it or not.

We have two types of clients using recruitment as a service. 1. Clients that want to test the market to see what coverage is available for a specific role, but who are not quite ready to hire. 2. Clients who have budget and headcount approval.

For clients in group one, we charge for a couple of hours of work to deliver the data they require around that role. For clients in group two, we work until we place. Our average time to place is 10 hours. In that scenario, we charge for 10 hours of work regardless of how many roles we are working to fill. We also operate a price cap to ensure that costs can be controlled.

Our clients understand that for recruitment as a service to deliver maximum value and savings, we must work exclusively on the placement. Having debunked the myth surrounding the PSL and the adage that more is better, our clients are not only receiving incredible value for money but the time spent managing numerous suppliers has been dramatically reduced also.

The recruitment industry has now got another option and its recruitment as a service from Schwarz & Vogel. Contact us today to book a meeting with one of our team and get recruitment as a service working for you.