It’s no secret that finding and hiring good talent is one of the most critical functions of any business. It’s also one of the most challenging. The tight labor market makes finding the right people especially tough. The current U.S. unemployment rate of 3.6% has not been experienced in 50 years.
While you can’t control the labor market, you can better understand the landscape of recruiting options to pick the best solution for your company. As someone who has helped hundreds of companies grow, I’d like to share a veteran’s bird’s-eye view of the four main routes you can take and the pros and cons of each.
Hiring Managers As Recruiters
Hiring managers need to be involved in recruiting no matter what, but relying on them for all recruiting efforts may be an option for smaller companies.
• Hiring managers clearly understand the scope of the role they need to fill, and the people who will work best on their team.
• Passive candidates (i.e., people not looking for a job, but possibly your ideal candidate) are more likely to respond to outreach directly from hiring managers representing the company’s brand.
• This may seem like a cost-effective option, but factor in the 40-60 hours of their time it takes to do a search, plus lost productivity and lost opportunity costs. The savings may not be that great.
• Your director of marketing, VP of sales or CFO are likely not recruiting experts, nor do they have the professional tools needed to advance and improve the recruiting process. This can mean a lack of access to top-shelf candidates and roles sitting empty for longer.
We see that once a company reaches a certain size and has a steady stream of hires, it makes sense to bring recruiting in-house, either with an HR person and/or a dedicated recruiter(s). When doing a cost comparison between internal or external recruiters, be sure to factor in all expenses to get an apples-to-apples comparison beyond just salary (training, management, office costs, oversight, professional tools, benefits, etc.).
• As an employee, these recruiters live your company’s culture and values every day. They are dedicated to and aligned with your goals and understand firsthand who will work well on your teams.
• An internal recruiter authentically represents your company to candidates, which is an important element of building an effective employment brand.
• Your bandwidth is limited. If you have more open positions than your recruiter(s) can handle, roles will sit empty longer. Conversely, if your hiring slows down, your recruiter(s) may be idle and you may need to downsize.
• Your recruiting expertise is also limited. You may have a solid recruiter, but they may not have the expertise you need when making very specialized hires.
Traditional Third-Party Commission-Based Recruiters
When it comes to “hiring a recruiter,” most people think of commission-based recruiters. Such recruiters charge anywhere from 20-40% of the first-year salary of each hire. Some are contingency-based, where you only pay if the search ends in a hire. Others are retainer-based, where commission is paid in two or three installments throughout the search, meaning you are committed to paying a large portion of the commission regardless of the end result.
• With the contingency-based option, you only pay if the recruiter’s search ends in a hire. Some companies hire several contingency recruiters at once to create a race to the finish line (a hire).
• Like all third-party recruiters, they have access to a suite of recruiting tools to access candidates you may not find on your own.
• The steep cost can put this option out of reach for many, especially smaller, quickly scaling companies with a lot of hires to make.
• The commission-based model can be misaligned with a client’s needs because it is incentivized by a windfall after a hire. Recruiters may push to get less-than-ideal candidates placed. They may “puff up” resumes to make candidates appear like a better fit than they actually are, or coach candidates to say the right things just to get the job.
Third-Party Recruiters Who Work On An Hourly Basis
These recruiters charge for the time it takes to find talent for you, similar to how many other professional services work. (This is the model we use at the recruiting firm I founded.) It is a hybrid of the above options, where you can outsource recruiting, either to handle all your recruiting or add bandwidth and expertise to augment your internal recruiting effort, yet still have many of the components of an in-house recruiter.
• Because this model is not based on charging commissions, recruiters are more likely to be aligned with your needs, transparent throughout the process and flexible in the scope of work.
• This option can provide you with recruiting expertise and bandwidth when you need it, yet be significantly less expensive than a traditional contingency recruiter, especially when making multiple hires at once, or working with fluctuating hiring.
• You will not always know at the outset exactly how much a hire will cost, since it depends on the number of hours it takes. Hard-to-fill roles will likely be more expensive than roles that are easier to fill.
• Since these recruiters charge by the hour, you will pay for your search whether you make a hire or not. That being said, if you’ve paid for one search that leads to multiple hires, you do not have to pay multiple commissions.
As you can see, the recruiting model best suited to your needs depends on your company’s size, budget, growth trajectory, goals, internal structure and individual work style. Like with everything else, it is important to be a savvy consumer. Educate yourself so that you can enter into your search for a recruiter armed with the right questions to find the clarity you need.