Consultant Earnings Static

CONSULTANT EARNINGS STATIC

The information which follows is a compilation of the results from almost 800 firms who responded to our survey representing over 4,300 revenue-producing consultants. This is a slightly larger number of respondents than last year. Almost 20% of the respondents were solo practitioners

The recruiting profession, at least according to this polled group, attests to the fact that our business continues its recovery, although not as robust as we had thought, based upon the actual numbers. Perhaps we didn’t hear from a large enough sample since we only polled readers of The Fordyce Letter but this snapshot has demonstrated amazing accuracy over the 20+ years in which we have conducted this survey and TFL readers tend to be longer tenured and more successful than non-readers.

As always, we asked for results from only those people who have been in the business for a year or more. While there are occasional superstars who demonstrate exceptional performance during that critical first year, this is an easy entry, easy exit business and including neophytes skews the results in such a way as to distort the results.

We also deleted those few responses where the Cash In figures were outrageously high (well over $1 million and probably a pooling of revenues from a number of ‘team’ members) or too low (only worked part time during the polled year).

Only 6% of the respondents identified themselves as purely retained. The balance were contingency practitioners with about 17% indicating that they occasionally charged upfront commitment or engagement fees and about 4% of the contingency group said they sporadically worked a fully retained assignment.

Approximately 20% of the respondents were solo practitioners, a percentage that is reflective of the proportional distribution of our readership in general. Franchised offices comprised 29% of the survey respondents, down somewhat from last year.

Here is a thumbnail look at those things that seem to matter most to readers. More detailed information will follow in subsequent issues for those whose eyes have not yet glazed over.

CATEGORY PERCENTAGE OF RESPONDENT FIRMS

SOLO PRACTITIONERS 20%
NON-SOLO INDEPENDENT FIRMS 48%
FRANCHISED FIRMS 29%
OTHER MODALITIES 3%

AVERAGE FEES COLLECTED for 2005

SOLO PRACTITIONERS $18,442.46
NON-SOLO INDEPENDENT FIRMS $19,856.60
FRANCHISED OFFICES $19,227.20

NOTE: The previous year’s average fee for 2004 was $17,863. Average fees for 2005 have jumped almost 10% from the previous year, due primarily to increasing salaries and more 30% fees being charged. Another factor, according to many, is the fact that they are more selective in the assignments they accept. One told us, “I’m well aware that most companies will attempt to fill the run-of-the-mill jobs on their own and the ones they offer me are more difficult. Even so, I only take those where the odds of filling them are heavily weighted in my favor. I turn down 4 out of every 5 openings and almost always require some type of commitment fee as well as a 30% fee. That’s what my time is worth and I have no desire to waste it on sub-par or needle-in-a-haystack exercises.”

A higher than average number of solo practitioners are still charging from 20-25%. We suppose they do so because they have a lower overhead component.

AVERAGE CASH IN for 2005

SOLO PRACTITIONERS $230,565.12
NON-SOLO INDEPENDENT FIRMS $234,885.50
FRANCHISED OFFICES $239,068.30

NOTE: 2004 was the turnaround year for our business. 2005 showed a slight uptrend in average cash in but not a significant increase – in fact, because of the increase in average fees, the average cash in results remained somewhat static.
Another reason is that over 60% of the non-solo offices added staff in 2004 and 2005 and this “rookie” factor may have decreased the numbers over previous years when the average tenure of participants was several years longer.

AVERAGE CONSULTANT SHARE OF FEES for 2005

NON-SOLO INDEPENDENT FIRMS $105,698.25
FRANCHISED OFFICES $95,627.20
SOLO PRACTITIONERS Keeps all less expenses

NOTE: Non-solo independent firms tended to pay out an average of 45% of cash in while franchised firms paid about 40%. Although some firms pay a fixed salary plus a smaller percentage of the Cash In, the vast majority of firms still compensate their consulting staffs based on performance (commission vs. salary). Another variable is the commission percentage paid. Some firms pay no draws or salaries, but pay from 50-70% of Cash In as a tradeoff. Although the IRS deems it illegal to treat your consultants as Independent Contractors, the large number of people working as virtual consultants from their homes rather than chained to a desk in a typical office environment rather blurs the ability of the ‘revenooers’ to make the determination regarding the I/C status.

AVERAGE PERCENTAGE PAID TO CONSULTANTS for 2005

ALL SURVEYED 41.76%
NON-SOLO INDEPENDENT FIRMS 43.68%
FRANCHISED OFFICES 39.98%
SOLO PRACTITIONERS Not applicable

NOTE: Very little change from previous years. Some firms pay as little as 30% and a few dozen of those in this survey indicated that they pay as much as 70%. Much depends upon the architecture of the firm, benefits offered, types of placements, draw/salary components, etc. Percentages very often “step up” based upon Cash In (gross fee) results. Thresholds will differ from firm to firm but it is almost universal that the more a consultant bills, the higher the payout will be as a percentage of the additional Cash In.

TENURE OF RESPONDENTS AVERAGE = 6.17 years

NOTE: Average tenure of recruiters dropped from 9.17 years in 2004 to 6.14 years in 2005. This reflects the fact that many firms increased their staff size during the past couple of years creating more respondents with less tenure. A large number of “old-timers” continue to retire. Even so, the tenure of practitioners in this survey points to the fact that a large majority were able to stay afloat and survive despite the economic circumstances at the beginning of this century..

Niche Ranking of respondents

The top niches represented by respondents to this survey were

Specialty Ranking

Accounting/Banking/Financial related 1
Sales/Marketing 2
Healthcare/Pharmaceutical/Medical Related 3
Manufacturing/QC/Production 4
Engineering/Technical/Design/R&D/High Tech 5
IT 6
Legal/Paralegal 7
Insurance 8
Hospitality/Food Service/Leisure/Travel 9
Retail 10
Real Estate/Construction 11
General/Admin./HR/Mgmt. 12
Telecommunication 13
Advertising/PR/Graphic Arts/Publishing 14
Clerical/Office Support 15

NOTE: These rankings represent the number of people who work within the named specialty according to the respondents to this survey. They closely parallel the anecdotal comments we receive on a daily basis in conversations with our readers. Being highly ranked does not necessarily mean you should flock to those specialties since specialty areas attracting a large number of recruiters often means a greater tendency for clients to insist on deep discounts, believing that the laws of supply and demand work in their favor. There are dozens of very strange specialty areas practiced by a very few people who earn a lot of money and these will be covered in future issues.

AVERAGE # CONSULTANTS PER FIRM 6.5

NOTE: There has been a doubling in the number of consultants per firm since last year’s survey. Remember, however, that we do not include consultants with less than one year of experience. Even so, we would have suspected this number of be even higher since many firms responding to last year’s survey told us they planned to add staff. If they did so, perhaps the majority of them didn’t last long enough to be included in this year’s survey.

FEE PERCENTAGES

Median fee percentage billed and collected 26%

NOTE: When over 40% of respondents report that 25% is what they are able to charge, it almost becomes the norm by default. While most still have a ‘sticker price’ of 30% on their fee schedules, fact is, the real fee is almost always 25% – or lower.” In 2005 it crept up by 1% to 26% because large numbers of practitioners are cherry-picking assignments and refusing to work 25 percenters.

We have seen some significant movement back towards a 30% fee lately, but there is still reluctance on the part of some large employers unless they are desperate to alleviate their pain on certain critical openings.

Also, rather than dropping their 30% fees down to 25% (which is really a 17% discount – not the 5% as many believe), many have lowered it to 27.5% or some other in between percentage outside of the ‘5%’ discount normally requested.
Here are the survey results:

33% fees 2.8%
30% fees 31.3%
26-29% fees 6.6%
25% fees 42.2%
21-24% fees 2.6%
20% fees 11.7%
<20% fees 0.12%
Other (flat fee, hourly, unbundled services, etc.) 0.7%

GUARANTEES OFFERED

M = Moneyback R = Replacement P = Prorated

30M 11.1%
30R 26.3%
30P 4.5%
45R 0.03%
45P 0.03%
60M 6.9%
60P 1.3%
60R 25.5%
70M 0.07%
90M 2.1%
90P 1.8%
90R 13.4%
None 3.5%

CONSULTANT % SHARE OF CASH IN

Average commission rate 41.38%

NOTE: These have declined since our last survey when the average consultant commission percentage was 42.07%. They range from a low of 10% (where a hefty salary is paid and the 10% is deemed an adequate added incentive) up to 75% (where no draw or salary is paid).
Very few firms have a ‘static’ percentage payout. Most have increasing percentages based upon varying threshold production figures.

MONTHLY DRAW

The average draw is $2,289.75. The median is $2,000 – the same as last year.

SOME OBSERVATIONS

Further correlations of the data are still being massaged and the results will be reported in future issues.
We appreciate those who took the time to respond.

TENURE AVERAGE / MEDIAN CASH IN — CONSULTANT SHARE

1-2 years (17.4%) $146,121.93 / $130,000.00 —> $58,915.27 / $50,000.00
3-4 years (13.77%) $215,483.83 / $181,869.00 —> $90,559.12 / $79,036.00
5-6 years (16.88%) $263,115.82 / $253,020.00 —> $119,003.03 / $108,885.00
7-8 years (12.47%) $219,663.62 / $200,000.00 —> $112,405.25 / $87,440.00
9-10 years (10.64%) $240,974.53 / $210,000.00 —> $112,401.09 / $93,708.00
11+ years (29.09%) $257,643.44 / $233,745.00 —> $113,219.22 / 100,578.00

NOTE: There seems to be a steady progression through the first 6 years, then production appears to stabilize.

PERFORMANCE BY SPECIALTY NICHE

Accounting/Auditing/Treasury

% of entire survey 6.2%
Average fee $17,106.00
Median fee $17,300.00
Average commission paid 40.1%
Average practitioner tenure 8.83 years
Median practitioner tenure 6 years
Average Cash In $203,447.25
Median Cash In $208,984.00
High fee collected $108,000.00

Advertising/PR/Graphic Arts/Publishing*

% of entire survey 2.5%
Average fee $22,283.75
Median fee $18,092.50
Average commission paid 45.3%
Average practitioner tenure 8.5 years
Median practitioner tenure 6 years
Average Cash In $239,769.67
Median Cash In $218,225.00
High fee collected $60,000.00

Banking/Financial Institutions/Wall Street

% of entire survey 10.1%
Average fee $19,740.93
Median fee $18,250.00
Average commission paid 38.6%
Average practitioner tenure 6.99 years
Median practitioner tenure 5 years
Average Cash In $188,086.15
Median Cash In $167,000.00
High fee collected $81,000.00

Clerical/Office Support

% of entire survey 3.3%
Average fee $7,875.00
Median fee $8,050.00
Average commission paid 22.31%
Average practitioner tenure 10.35 years
Median practitioner tenure 10 years
Average Cash In $222,122.85
Median Cash In $204,730.00
High fee collected $35,001.00

Information Technology

% of entire survey 9.04%
Average fee $17,836.87
Median fee $18,000.00
Average commission paid 41.9.1%
Average practitioner tenure 9.48 years
Median practitioner tenure 7 years
Average Cash In $230,668.24
Median Cash In $199,688.50
High fee collected $123,000.00

Engineering/Technical/Design/R&D

% of entire survey 13.2%
Average fee $17,317.18
Median fee $17,216.50
Average commission paid 40.87%
Average practitioner tenure 9.26 years
Median practitioner tenure 6.5 years
Average Cash In $218,953.04
Median Cash In $192,826.00
High fee collected $56,000.00

General/Administration/HR/Management

% of entire survey 4.3%
Average fee $20,315.11
Median fee $15,000.00
Average commission paid 41.7%
Average practitioner tenure 10.47 years
Median practitioner tenure 7 years
Average Cash In $219,434.18
Median Cash In $219,685.00
High fee collected $106,920.00

Article Continues Below

Healthcare/Pharmaceutical/Medical Related

% of entire survey 12.6%
Average fee $19,709.73
Median fee $19,900.00
Average commission paid 41.49%
Average practitioner tenure 6.49 years
Median practitioner tenure 5 years
Average Cash In $217,264.65
Median Cash In $193,000.00
High fee collected $70,000

High Tech*

% of entire survey 3.1%
Average fee $19,562.50
Median fee $18,625.00
Average commission paid 44.1%
Average practitioner tenure 10.17 years
Median practitioner tenure 8.5 years
Average Cash In $219,011.17
Median Cash In $236,146.00
High fee collected $39,600.00

Hospitality/Foodservice/Leisure/Travel*

% of entire survey 3.1%
Average fee $17,093.75
Median fee $17,000.00
Average commission paid 49.67%
Average practitioner tenure 9.92 years
Median practitioner tenure 6.5 years
Average Cash In $256,225.82
Median Cash In $225,000.00
High fee collected $150,000.00

Insurance

% of entire survey 5.9%
Average fee $16,727.78
Median fee $17,000.00
Average commission paid 45.35%
Average practitioner tenure 13.17 years
Median practitioner tenure 12 years
Average Cash In $201,659.13
Median Cash In $186,500.00
High fee collected $80,500.00

Legal*

% of entire survey 1.0%
Average fee $32,333.00
Average commission paid 45 %
Average practitioner tenure 6 years
Average Cash In $188,269.00
Median Cash In $140,500.00
High fee collected $57,500.00

Manufacturing/QC/Production

% of entire survey 9.6%
Average fee $18,063.94
Median fee $18,375.00
Average commission paid 42.3%
Average practitioner tenure 9.62 years
Median practitioner tenure 8 years
Average Cash In $236,052.76
Median Cash In $201,155.00
High fee collected $54,000.00

Real Estate/Construction*

% of entire survey 3.0%
Average fee $17,262.20
Median fee $18,839.00
Average commission paid 44.2 %
Average practitioner tenure 12.38 years
Median practitioner tenure 7 years
Average Cash In $403,025.42
Median Cash In $347,500.00
High fee collected $80,000.00

Retail*

% of entire survey 3.0%
Average fee $6,500.00
Average commission paid 35 %
Average practitioner tenure 4 years
Median practitioner tenure 1 years
Average Cash In $203,333.33
Median Cash In $150,000.00
High fee collected $20,000.00

Sales/Marketing

% of entire survey 11.6%
Average fee $16,585.67
Median fee $15,000.00
Average commission paid 40.1%
Average practitioner tenure 9.92 years
Median practitioner tenure 7 years
Average Cash In $224,346.07
Median Cash In $177,973.00
High fee collected $80,000.00

* The information under these categories is questionable because of the low number of respondents

AVERAGE # CONSULTANTS PER FIRM 3.1

NOTE: There has been no change in the number of consultants per firm since last year’s survey. Remember, however, that we do not include consultants with less than one year of experience. Even so, we would have suspected this number of be higher since many firms responding to last year’s survey told us they planned to add staff. If they did so, perhaps the majority of them didn’t last long enough to be included in this year’s survey.

FEE PERCENTAGES

Median fee percentage billed and collected 25%

NOTE: Reiterating our comments from last year’s survey, “When over 65% of respondents report that 25% are what they are able to charge, it almost becomes the norm by default. While most still have a ‘sticker price’ of 30% on their fee schedules, fact is, the real fee is almost always 25% – or lower.”

Although we have lately seen some significant movement back towards a 30% fee, there is still reluctance on the part of some large employers unless they are desperate to alleviate their pain on certain critical openings.

Also, rather than dropping their 30% fees down to 25% (which is really a 17% discount – not the 5% as many believe), many have lowered it to 27.5% or some other in between percentage outside of the ‘5’ discount normally requested.

Here are the survey results:

33% fees 2.8%
30% fees 31.3%
26-29% fees 2.6%
25% fees 48.2%
21-24% fees 2.6%
20% fees 11.7%
<20% fees 0.12%
Other (flat fee, hourly, unbundled services, etc.) 0.7%

GUARANTEES OFFERED

M = Moneyback R = Replacement P = Prorated

30M 12.1%
30R 28.3%
30P 1.5%
45R 0.03%
45P 0.03%
60M 6.9%
60P 1.3%
60R 25.5%
70M 0.07%
90M 2.1%
90P 1.8%
90R 13.4%
None 3.5%

CONSULTANT % SHARE OF CASH IN

Average commission rate 41.38%
Median commission rate 40.00%

NOTE: These have declined since our last survey when the average consultant commission percentage was 42.07%. They range from a low of 10% (where a hefty salary is paid and the 10% is deemed an adequate added incentive) up to 75% (where no draw or salary is paid).
Very few firms have a ‘static’ percentage payout. Most have increasing percentages based upon varying threshold production figures.

MONTHLY DRAW

The average draw is $2,289.75. The median is $2,000 – the same as last year.

SOME OBSERVATIONS

Perhaps only happy and productive people respond to surveys like this. But we’ve been conducting this survey for 20 years and the results always seem to mirror the industry in general. It is, of course, only a snapshot of the industry at one specific point in time by people who are willing to share their results. It is instructive, however, as a benchmark against which to compare your particular practice. It also gives us the pulse of the industry.

We continue to see the tendency for birds of a feather flocking together. If a firm’s consultants have mediocre results, all of them generally follow that pattern. If a firm’s consultant billings are above average, all the consultants usually beat the average. Maybe it’s peer pressure; maybe it’s higher comfort levels. Maybe it’s better management; maybe it’s better training. Wish we knew so we could bottle it.

A few years ago, we chronicled a practitioner who billed over $900K per year with the help of two researchers. Evidently, others have followed that advice since several respondents indicated that they have successfully adopted that suggestion, One 27 year veteran in the engineering niche reported $923,000 cash in with the help of three research assistants. Another 10 years veteran operating in the Accounting area reported $895,000 with 2 researchers.

The most surprising was the fact that almost everyone we talk to tells us there’s more business than they can handle, yet the average practitioner still only makes an average of one placement a month. Either their ringmaster skills are deficient or they have a low comfort level, which prevents them from rising above mediocrity.

Further correlations of the data are still being massaged and the results will be reported in future issues.

We appreciate those who took the time to respond.

Paul Hawkinson is the editor of The Fordyce Letter, a publication for third-party recruiters that's part of ERE Media. He entered the personnel consulting industry in the late 1950's and began publishing for the industry in the 1970's. During his tenure as a practitioner, he personally billed over $5 million in both contingency and retainer assignments. He formed the Kimberly Organization and purchased The Fordyce Letter in 1980.

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