Multiple Opening Volume Discounts

“A company I consider a good client has asked me what kind of wiggle room I can give them on fees if they give me a dozen assignments.” Several requests of this type have come to us lately. We covered this topic before but here are our thoughts again.Now that business is getting stronger and employers are restaffing again, there’s an on-going propensity for fee-haggling. When times were tough, they said they couldn’t afford us. Now that times are better, they’re dangling multiple assignments in our faces as the incentive to recruit on-the-cheap.Can you imagine telling your best consultants that the more they bill, the lower their commission/bonus rate?In a perfect example of a “what’s wrong with this picture” scenario, an employer approached their best recruiting source (25 hires so far this year) and said, in effect, “Since you know exactly what we look for and you’ve done such a sterling job for us during the past several years, we’ve decided to pay you less per placement.”Another firm who used a long list of recruiters decided to scale back the number used to only those who had collected X dollars in fees over the past year. At the same time they decided to cut back their fee cap to 20%. In a sense, they were saying, “Congratulations, you made our approved list of recruiting sources so you can work harder to make less.”Short-sightedness in all its glory.So how do you handle the request for volume discounts when you suspect that this “fleet discount” proposal is merely a ploy?Publications that carry advertising learned long ago that when a potential advertiser tells you that they plan to advertise in every issue if you’ll give them a discounted rate, they usually plan on only one insertion. To service those with honorable intentions, they came up with the “earned discount.” The same is true in the recruiting business.Of course, discounts make sense in some cases . . . even for recruiting. There should probably be a monetary trade-off for a 10-placement deal. You’ll save money by not having to re-incur marketing/business development costs for each of the openings; you won’t have to learn the cultures and idiosyncrasies of ten different firms since all placements will be with the same firm; and your sourcing efforts will be more efficient, especially when all the openings are for similar types of people. There are other factors as well.If you have a true exclusive (is there really such a thing?), it may be worth a discount, but stuff happens. What if the openings are frozen after the first two placements? What if some are filled by employee referrals, thus reducing your true multiple placement opportunity? What if (you fill in the blanks).Here’s one example of how these types of deals can be formulated. Suppose you’ve been asked to find 10 digital design engineers, all at the $60,000 level. At your normal 30% fee, these fills would give you $180,000. You’ve been asked to do the job for 25% fees which will bring in $150,000 or $15,000 each.Explain to the employer that you have no objection to a $30,000 discount as long as the deal is done as expected. But also explain that the bulk of your time and cost expenditures will be up-front and propose the following formula:Placement 1 @ 30% $18,000Placement 2 @ 30% $18,000Placement 3 @ 30% $18,000Placement 4 @ 25% $15,000Placement 5 @ 25% $15,000Placement 6 @ 25% $15,000Placement 7 @ 25% $15,000Placement 8 @ 20% $12,000Placement 9 @ 20% $12,000Placement 10 @ 20% $12,000TOTAL FEES $150,000If the employer is not pulling your chain, they should have no problem with this formula. The bottom line is exactly what they wanted. The payout, however, protects you against any unforeseen termination of the search effort while still covering your heavier up-front costs. You’re moving the “what ifs” into the employer’s court. If he tells you no, he’s telling you that (a) there won’t be 10 placements and (b) he wants the advantage of the cheaper placements at the front end.Another formulation bases fee percentages on hire-in salaries rather than on which number the placement happens to be, but it’s complicated, unwieldy and more applicable to multiple deals at varying salary levels than for openings at the same level. The only advantage to this type calculation is that it discourages the temptation for employers to hire the cheaper ones first and defer the more expensive hires until the discount threshold is reached.A third way is to give a discount coupon applicable to future fees but, as one practitioner told us, “We’re in the talent business and coupons smack of pizza peddlers, not professionals.”Here’s a volume discount proposal used by a reader:1st and 2nd annual hires – billed at regular fee.3rd and 4th annual hires – billed at 5% reduction from regular fee.5th and 6th annual hires – billed at 10% reduction from regular fee.7th and 8th annual hires – billed at 15% reduction from regular fee.9th and 10th annual hires – billed at 20% reduction from regular fee.11 or more annual hires – billed at 25% reduction from regular fee.And yet another:There is a volume discount available for multiple placements during a twelve (12) month period. Should your company hire a second person from us during a twelve (12) month period following the first placement, we will compute the service fee as 30% of the total compensation to be earned by the candidate whom you employ during such candidate’s first twelve (12) months of employment. We will rebate your company 3.3% of the fee charged on the first placement. All subsequent placements during the twelve (12) months following the first placement, service fees will be computed as 25% of the total compensation to be earned by the candidate whom you employ during such candidate’s first twelve (12) months of employment.We will rebate to your company 5% of the fee on the previous two placements.Whatever deal you structure, make sure volume becomes reality before offering volume discounts for what could turn out to be only one or two placements.

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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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