The single act of adding a new person to your company will likely be your business’s largest expense as well as its greatest opportunity for making a lot more money.

And maybe that’s why it’s a total drag for lots of business owners.

There are lots of ways to successfully accomplish adding a new employee or building out a team, one is hiring a recruiter.

Most people have been called (hounded?) by a recruiter at some point and I’ve found that there’s deep mystery surrounding how these folks work. I’d also like to add my personal opinions on why the business is dying (drama!) and some ways I think savvy recruiters can reestablish our faith in them. Hopefully this series will shed some light on the business and process of recruiting and hiring, and help answer some questions about how/when/if you should ever use a recruiter to help expand your own business.

The Two Models

When you’re using a recruiter to build out a team there are essentially two common models of service: contingency and retained (there’s also staffing, but that is usually for administrative level employees).  The two models are notable in their differences in approach, pricing and level of service. It’s true there are many of variations on these two themes but a basic explanation goes something like this:

• Retained search is done on a consulting basis. This basically means that you hire the recruiter (or executive search consultant, if you prefer) exclusively as a trusted adviser who is attuned to the business case for the hire.
• Retained search is typically done for an executive-level employee, someone who is significantly adding to the bottom line of the company. This is because the potential addition in revenue and the fees you pay for the service are both high.
• The retained search consultant gets paid whether you actually make a hire or not. His job is to get the heart of what you’re looking for and prepare you for success in hiring but the end result ultimately depends on you.
• Retained search is typically done for a fee of 30-33% of the hired employee’s first year compensation. So, an employee earning $150,000 would yield a $50,000 search fee.
• Retained search gets you fully vetted candidates who have undergone a rigorous interview process. By the time they make it to your desk they’re qualified candidates.

Alternatively:

• Contingency recruiting is not an exclusive arrangement. You can have 10 recruiters working on the same search if you want.  The relationship is less consultative and more transactional.
• Contingency recruiting is typically done for mid-level employees making $50,000-$100,000 in total compensation.
• The contingency recruiter only gets paid if you choose his candidate and the hire is made. (Hence, contingent on the hire.)
• The contingency recruiter’s fee equals anywhere from 10-20% of the total first year compensation of the hired employee.
  
• Contingency recruiting gets you pre-screened candidates. Usually thorough interview to decide on viable candidacy is your job.

I should also add the process that each of these types of recruiters use is different since they have essentially much different responsibilities.  One is focused on a thorough overview of the candidate and making a match, not to just the job description, but to the company’s overarching business philosophy, aims and culture.  The other is focused on the gathering and quick screening of a large volume of candidates, funneling the best ones to his client.

Some things to especially note, I’ll start with the most obvious.

All these folks get paid a bunch of money for finding you quality employees. This is because it’s freaking hard.  When the essential element of the transaction is people, non-qualitative factors run amok. Psychology, emotion and communication-style (of both parties) play a significant role. A good recruiter must have the ability to evaluate and assess a candidate’s likelihood against so many tough-to-pin-down factors.

Recruiting and hiring is a classic example of it looks easier than it is. It is an expertise and the best ones are worth far more than their pricetags. (True with everything, isn’t is?)

In order to correctly decide what type of recruiter to use, you need to truly understand what your business needs are. ‘Nuff said.

This can definitely be learned and done in-house but it takes a lot of time. And it takes even more time without a certain level of expertise. That’s really a big chunk of what you’re paying for: time and expertise not a new employee.

In subsequent parts of Demystifying the Business of Recruiting, I’ll offer some thoughts on the two business models and suggest a new model, and I’ll let you know if I think it’s worth it and when/if/how to go about hiring a recruiter for your own business, should you ever decide to do so.