The Secret Guide to Headhunter Fee Percentage

They say, “you get what you pay for.” Organizations are going the extra mile to seek headhunters’ services to find the right talent for their job positions. Handling the recruitment process without assistance can be overwhelming and challenging, leading to hiring the wrong candidate.

A headhunter is a recruitment agency or independent contractor helping organizations find the right talent to fill a vacant position. Spending a little more on headhunters is essential for organizational growth. You are guaranteed to find the right candidate. There are different ways organizations pay headhunters for their services. The standard payment method is a percentage fee, which will be our focus in this guide. So how does this fee percentage work? Read along.

Headhunter fee percentage

For a headhunter to receive payment, an organization must successfully place the candidates. Most organizations draft an agreement stating payment terms in case the candidate works for a shorter period. The average headhunter fee percentage is between 18-25% of the candidate’s first annual salary.

Whenever a headhunter finds a candidate for a specialized or technical niche, the fee can go much higher, up to 50%. For example, if a headhunter finds a candidate earning $100,000 on a 30% fee. For this reason, they will make $30,000 of the salary, which sometimes includes commissions and bonuses.

Nowadays, most firms go for headhunters seeking a lower rate. Even though some organizations are paying more, it does not mean that they get the best talent than others. It’s all about the type of head hunter and the job position. Note that going for a cheap headhunter who delivers unqualified candidates also delays your company’s progress. So, hire wisely.

The current headhunter fees can be costly to an organization conducting frequent recruiting, especially with the varying headhunters’ costs. That said, the organization may decide to retain a headhunter for continuous service. The payment terms remain the same, but of course, you will pay an upfront or engagement fee, which will reflect in the final invoice.

Organizations expect the recruits to stay for at least three to six months for headhunters’ payment to be effective. Should a candidate leave an organization before the guaranteed time, the headhunter must conduct another search but this time for free. Some organizations will compensate half of the total fee depending on their relationship with the headhunter. That said, it is wise to ask for a guarantee when choosing a headhunter.

Types of headhunter fees

1. Contingent fee: This type of headhunter fees allow payment once upon successful placement of candidates. Mostly, the percentage fee is between 20-30% of the candidate’s first-year salary. Contingent headhunters go for medium to low job positions. For this reason, they will accept as many offers as possible to maximize their income. So, if you do not keep constant contact with them, they might leave your assignment out.

• Container fee: Container headhunters will request an upfront payment before beginning a search. They will make sure you have made a cash deposit for them to start working. Usually, this upfront fee ranges between $5000-$8000 depending on the skills you seek. Upon completing the search and candidate’s placement, they will charge a recruitment fee percentage ranging between 20-25% of the candidate’s first annual compensation or salary. Note that the upfront payment is not part of the percentage fee, but you are guaranteed to get quality talent.

• Contract fee: An organization can also opt to pay headhunters a contract fee whereby they receive payment hourly.The hourly rate usually ranges between $75-$150 depending on the available job position. In some countries, the fee can go as lower as $25 per hour. Make sure you negotiate with the headhunter the maximum amount you can pay so that they do not exceed the agreed hours. Headhunters believe that the contract fee is always low compared to other percentage fees. So, if you want a pocket-friendly service, contract headhunters are your best bet.

• Retained fee: This fee applies when a company works with a retained headhunter. Organizations hire these headhunters for a specific duration because of the excellent relationship they create with an organization. The retained fee is usually higher than the container and contingency. Here, the headhunters find highly skilled candidates for technical and specialized positions. The percentage rate ranges between 30-35%, and organizations pay in three installments as below.

• First installments when beginning the search for a candidate
  • Second installment during the shortlisting phase, and
  • The third installment on completion and the organization finally places the candidate

When negotiating with a headhunter, it will suit your needs to understand what a percentage for total compensation means to avoid future disagreements. Make sure that the payment involves the salary only, excluding the benefits, commissions, and bonuses. That way, you do not spend more than what you had in the budget.

Having a good relationship with a headhunter will give you a platform to negotiate. With time, the headhunter can reduce the percentage fee because of the frequent jobs you offer them. Note that you must also ensure your company has a good working relationship with its workers for you to get a highly skilled recruiter. If you have a high employee turnover, it will be challenging to find the right headhunter because they will fear ruining their reputation hence chances of getting quality work.

Conclusion

If your organization hires frequently, it is best to use a recruitment agency. They will assist in offering organizational insights to the recruits while handing all the necessary recruitment procedures. The recruitment agency fees can be on the higher side, but that can be all worth it if you get the right talent.

Now that you know the essential guide on how headhunters are paid, it is up to you to decide which way to go. After all, you want a headhunter who will deliver top talented candidates to fill the vacant position. So, is it wise to spend a little more on hiring? Answering this question will determine how you want to handle your recruiter fee agreement. The choice is all yours.