How Much Should You Charge?

As much as possible.That’s right — but the underlying question is – How much is possible? Your fee schedule can easily be too high (costing you placements) or too low (causing you to give them away).It’s as though employers wrote Henry David Thoreau’s l9th Century credo on your fee schedule:

Any fool can make a rule,and every fool will mind it.

Most fee schedules are “1% per thousand” with a 30% cap. But around half of the fees received are less than any scheduled amount. (Around none of them are more.) They’re less either because a lower fee was negotiated or simply because the “client” decided it was “too high” after the placement was made.So for once and for all, here’s the way to determine how much to charge:

SET A FAIR FEE

“What’s fair?” you ask. I answer, “Whatever’s fair to you.” I answer that way because no matter how you determine your fee, effectively presenting and collecting it will depend on your personal mindset about whether it’s fair. This is critical to any consistent, viable feegetting approach.Here are some things that will help you decide (in the order you should do them):

  1. Review at least 20 fee schedules from competitors in your area of placement.If your activity is localized, use local ones.
  2. Ask at least 20 employers in your area about their fee policies.Then determine whether there are exceptions. If so; why, when, where and what?
  3. Analyze whether you can market your services in a way that will enable you to charge more or less.Daniel Anderson suggested in Passport to Riches:Think it over and over very carefully until your motivation and belief [are] in high gear. And then simply add a little common sense.You’re still in a testing phase. You’re trying to establish just exactly what your selling price should be.
  4. Test market the fee schedule.Don’t just ask competitors or employers. Both have hidden agendas. Try it on for size.The question isn’t what they think will work. It’s what you think is fair, and will work.You’re doing a little classic management brainwashing on yourself — getting the “employee” (you) to think it’s his idea. Getting him to “buy into” the idea; to make it his own.Paul Cummings pointed out in Open Management:

[Y]ou should permit and encourage subordinates to participate in setting departmental objectives… Basically, the motivating force is developed from the fact that there is ownership by injecting one’s own ideas, values and decisions into one’s work. “Ownership” in this case means belonging to, pertaining to, or relating to one’s self, though participation in decisions [about] the work in which one is engaged.

KNOW THE DIFFERENCE BETWEEN AN UNCERTAIN FEE SCHEDULE AND AN UNCERTAIN FEE

A percentage contingency fee is an uncertain fee because the candidate’s starting salary is unknown until just before the contract is executed. An escalating percentage contingency fee is even less certain because even the rate isn’t known.But one thing is certain: If the employer doesn’t hire “directly or indirectly as a result of the referral” (typical fee schedule wording) your fee will be a big, fat, absolute ze-e-e-e-ro.How many times have you said “If you don’t hire someone through us, you won’t owe anything?” Do you realize what the effect of that “negative self-talk” is on the hiring authority and you? Denis Waitley does. He wrote in The Psychology of Winning:

Everything you say about yourself is subconsciously being recorded by others and, more importantly, by your own self-image.Perhaps the most important key to the permanent enhancement of self-esteem is the practice of positive self-talk. Every waking moment we must feed our subconscious positive thoughts about ourselves and our performances — so relentlessly and vividly that our self-images are, in time, modified to conform to the new, higher standards.Winners know that their actions will be controlled by their current obsessions.

Your uncertainty doesn’t stop there. The hiring authority plays it back just to be sure. He says something like “So if we don’t hire, we won’t owe you anything, right?” You reinforce the failure with an automatic “That’s right, there’s no obligation!”Ain’t it great? You’re talking yourself out of a fee every time you clear one.Better stop. Better say something like “We charge a percentage of the candidate’s starting salary. When he accepts (or starts), the fee is due.”Maybe then the hirer will be certain — and you will too.

DON’T BACK DOWN FROM THE FEE

In How to Start and Build a Law Practice, Jay Foonberg told lawyers:

No matter [what fee you charge], be firm. If you are uncertain or wishy-washy, the client will rapidly lose confidence in you as a potential lawyer to handle his case. After all, if you can’t set a value on your own services, perhaps they have no value.If you back down, the client will think you were deliberately attempting to overcharge him. The same client will again try to get a discount as a precondition to letting you close the case.

It’s true when you make the placement too. The chances of a further fee reduction are high. You’ve lost all your leverage — given away your inventory. And your integrity. There’s not much left to bargain with. That’s why most fee collections started as fee reductions.It gets worse — when you try to enforce the fee, how do you show which one the employer agreed to pay? Either one? Another one? Neither one?Isn’t all of this confusing? Doesn’t it create an ambiguity? How can an employer unequivocally agree to something that’s not definite and certain?What was the placement “worth?” Nobody really knows. But what did you think it was worth? Did you really just negotiate with yourself, then try to bind the employer after it hired?This is all Contracts 101 course material. The next semester there’s something called “Equity 101.” It tries to deal with “fairness.” That’s when the employer rolls out the pricecutter fee schedules, corporate fee ceilings, and embarrassing embezzlements of your candidates.If you tell yourself “He’s in our files anyway, so who cares?” – nobody will. You waive (relinquish your right to) the fee by your action in reducing it — or your inaction by not objecting to less.There’s a technique you can use when you’re in a low fee (not “no fee”) situation. It’s called the “Reduction To The Ridiculous Close”. It was first introduced to our industry by Paul Hawkinson in his best-selling booklet Closing on Objections. The key is to focus on the difference, rather than the fee itself.Let’s assume your fee for a $60,000 per year candidate is 30%, or $l8,000. The employer will only pay a 25% max, or $15,000. So we’re dealing with a differential of $3,000.Before you proceed to use the “Reduction Close”, know:

  1. The average tenure of your candidate on all similar jobs he’s held. (Easy . . . it’s on his resume or background information.)
  2. The average tenure of all employees in that position throughout the industry. (Overall, average professional turnover is 2.4 years. Check your candidate files in similar jobifications, and adjust if necessary.) “
  3. The average tenure of employees in the target job. (Ask — it should be a routine job order question anyway.)
  4. The turnover within the company. (Ask here too — it should also be a routine JO question.)
  5. How long the job has been open. (That’s right – another routine question to ask.)Have a calculator that makes noise on your desk. Then tell the hiring authority that you’re going to average these numbers. Do it by adding them on the calculator and dividing the total by 5. Let’s assume the average is 2.0 years.Next, say:
    1. “Since these average 2.0 years, you’re looking at $l,500 per year. ($3,000 divided by 2).”
    2. “With real inflation at about 5% per year, that’s actuarially a reduction of around $75. So We’re really talking about an adjusted amount of $1,425 per year.”
    3. “The position’s been open for 3 months, so let’s assume it would take you that long to fill it again. Three months is 25% of a year or $356, so that reduces the $1,425 to around $1,069 ($1,425 minus $356).”
    4. “If the position remains unfilled for another 3 months, you’ll:
      1. Risk losing overworked employees.
      2. Risk more industrial injuries.
      3. Risk losing customers.
      4. Risk more defective products or services, and (if applicable)
      5. Pay more overtime.

While the cost of these can’t be estimated exactly, it’s at least as much as the candidate would be paid. Since three months is 25% of a year, at $60,000, that’s $l5,000 ($60,000 times 25%).So you can see, that $1,500 fee differential per year will conservatively cost $13,931 ($l5,000 minus $1,069).Discussing the “Reduction Close” in How to Master the Art of Selling, Tom Hopkins said:

Are you thinking something like, “Wow, I couldn’t do that?” Why not?I think I’m safe in saying that money is an objection you’re going to encounter frequently as long as you’re in sales. That being so, can you reach your full potential without learning how to cope with it?Of course not. So adapt this technique to your offering, work out the bugs with a friend, memorize every word, get the numbers down pat, and USE IT. Your sales results will show a startling difference.If you’ve qualified them and they need the benefits, you have the right to refuse their final objection to the ridiculous amount, don’t you? Of course you do. Isn’t it ridiculous for them to let such an insignificant sum stand in the way of their enjoyment of the benefits they want? And wouldn’t it be ridiculous for you to ignore this powerful technique for helping them have what they need?

Whether you understand this Math 101 formula isn’t important. Using it is. Don’t back down from a full fee. Don’t make yourself look ridiculous.4. UNDERSTAND THAT LOWER FEES MEANS FEWER PLACEMENTSMost placers think the opposite is true. Until they pass Placement 101.An employer more interested in price than quality will never be your “client” anyway. There’s a tradeoff — you won’t work as hard. The advice that you give won’t be followed either. (We discussed why in Item 3.)Once you find candidates, price-conscious shoppers will lowball salary offers. The chances of them raising the offers are statistically about 40% lower too. This shouldn’t surprise you. “Price” is their primary concern. You know people like that. They’re always looking for a bargain. They never pay retail.If you manage to pry, push and pull a candidate through the hiring cycle, you won’t get a full fee.So lower fees mean:

  1. Working harder than average, for
  2. Less than average pay.

If you’ve allowed yourself to get caught in this whirlwind, check your sendout, turndown, offer, acceptance and start records. You’ll find out an amazing statistic: The greater the fee reduction, the less likely the placement. That bell-shaped curve is operating — with every passing day, we validate it more and more.And you thought just the reverse was true, right? You should have read William Lareau’s Conduct Expected: The Unwritten Rules for a Successful Business Career:

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When you wonder “Where’s my thanks?” you’d better be prepared to provide your own…People aren’t at their best at work. Most of them are there not because they love it but because they have no choice. Believe this and consider the consequences of it.Routine studies repeatedly demonstrate that lots of people can’t stand their jobs.The consequence is that people come to work with a lot of frustration, anger and disappointment. Like caged tigers, they are limited to pacing back and forth, forced to try to control their energy and emotions as they perceive that the world is going by without them.Since you have no choice, watch the tigers very carefully. The jungle floor is carpeted with the bones of careers whose owners let down their guards.

Headhunter beware. Check your records, and you’ll see the lower the fee goes, the less you place.

DON’T TRY TO COMPETE WITH THOSE WHO’LL WORK FOR NOTHING

Nobody works for nothing. But employers would like you to think others do. The fact is, every placement has to pay for itself or the “shortfall” must be made up somewhere.These employers are just playing a game. But they really don’t want to win. Rodney Young observed in Five-Minute Lessons in Successful Selling:

“Everybody” should want to save money. Right? Well, the fact is that not every buyer wants to . . . a buyer may well feel that what’s needed is not to save money, but to get more from some planned expenditure. Right now, he or she might well want to spend money.”

An open requisition for a real job is motivation enough. Contingency-fee placement just doesn’t leave much room for fee fighting. The “five-figure fee for a phone call” illusion fools employers, and it may even fool some of your competitors; but it shouldn’t fool you. For every one that works like that, there are hundreds that don’t. A few lucky sendouts should have you depositing those fast five figures into your savings account. The law of averages will catch up with you, and you’d better be ready. The law of averages is the law of placement.When you try to compete with someone who’ll supposedly work for nothing, you’re not asking for a fee — you’re begging for it. David Schwartz discussed the difference in The Magic of Getting What You Want:

Asking and begging, though often confused, have different meanings. Asking means calling on someone for information, expressing a request, or offering something in exchange for something else. Asking is positive and to be admired.Begging, on the other hand, means seeking charity, bending and bowing. We associate beggars with poverty, misery and denial. Begging is negative and is not admired.Instead [of competing with an anonymous beggar], keep concentrating on why it is to the buyer’s self-interest to make the [Placement].Remember, begging reduces you. It lowers your self-esteem. And it rarely pays off.

One search specialist explained it to me this way: “I earn a very good income because my recommendations work out for the client company.”Someone who’ll work for nothing doesn’t understand rudimentary placement cost accounting. There are no “free samples” or even “loss leaders” – there are no “exclusive assignments,” and there is no “volume hiring.”There’re only those who are fooled into thinking they exist. Any fool can make a rule. But he can’t make a placement.So let that chancy contingency fee be the extent of your concession. It’s usually “working for nothing” anyway

BE ABLE TO PROVE THE FEE IS DUE

Most placement fees are a “slide.” They depend on the good will of the employer. Good will is a scarce commodity in the jungle.The two most misunderstood Swahili phrases in the headhunter’s vocabulary are:

  1. “I cleared the fee.”This means the fee was mentioned over the phone, and accepted or negotiated verbally with the employer.
  2. “I confirmed the fee in writing.”This means a fee schedule or letter was sent with no written reply from the employer.

If you literally translate these phrases into English, you’ll find they mean the same thing: “No sale.” If you don’t know why, you might check out an adult school course in beginning Swahili. If it’s not offered in your community, opt for Contracts 101.The placement industry has talked itself into believing that the “customary and usual” way of doing business creates legally enforceable rights to a fee.The more sophisticated operators know the game. They used to just write off their losses, minimizing them by withholding commissions. But now, the losses on contingency search fees are over 20%. They might not tell you their procedures have changed, but they have — they’re requiring signatures of employers as S.O.P. One major calls it “Standard Operating Procedure for Success On Payment”.That’s a phrase worth knowing.How much should you charge? Whatever your revised fee schedule says. That means a foolproof full fee. No foolin’.

More than thirty-five years ago, Jeffrey G. Allen, J.D., C.P.C. turned a decade of recruiting and human resources management into the legal specialty of placement law. Since 1975, Jeff has collected more placement fees, litigated more trade secrets cases, and assisted more placement practitioners than anyone else. From individuals to multinational corporations in every phase of staffing, his name is synonymous with competent legal representation. Jeff holds four certifications in placement and is the author of 24 popular books in the career field, including bestsellers How to Turn an Interview into a Job, The Complete Q&A Job Interview Book and the revolutionary Instant Interviews. As the world?s leading placement lawyer, Jeff?s experience includes: Thirty-five years of law practice specializing in representation of staffing businesses and practitioners; Author of ?The Allen Law?--the only placement information trade secrets law in the United States; Expert witness on employment and placement matters; Recruiter and staffing service office manager; Human resources manager for major employers; Certified Personnel Consultant, Certified Placement Counselor, Certified Employment Specialist and Certified Search Specialist designations; Cofounder of the national Certified Search Specialist program; Special Advisor to the American Employment Association; General Counsel to the California Association of Personnel Consultants (honorary lifetime membership conferred); Founder and Director of the National Placement Law Center; Recipient of the Staffing Industry Lifetime Achievement Award; Advisor to national, regional and state trade associations on legal, ethics and legislative matters; Author of The Placement Strategy Handbook, Placement Management, The National Placement Law Center Fee Collection Guide and The Best of Jeff Allen, published by Search Research Institute exclusively for the staffing industry; and Producer of the EMPLAW Audio Series on employment law matters. Email him at jeff@placementlaw.com.

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