The 10% Flat Fee: Yay or Nay?

On the same day that ExecuNet’s June survey of 145 executive recruiters revealed a 7% drop in confidence (50% compared to 57% last month) over improvement in the executive employment market, along comes a competitor that might make you shudder.

An executive recruitment company has just announced its plans to undercut competitors by offering a flat fee of 10% per month of what the employee is paid for 24 months.

If the employee does not stay with the company — Schwelling Recruiting Services, which specializes in C-level executives as well as sales executives and new business development executives — the employer is only responsible for the months actually worked.

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What does this say about the company overall? And what does this say about the economy and what it’s doing to our competition?

Elaine Rigoli has nearly 15 years of experience managing content and community for various B2B and consumer websites. Elaine has written thousands of business and technology articles and has been quoted in The Wall Street Journal and eWeek, among other publications.

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9 Comments on “The 10% Flat Fee: Yay or Nay?

  1. I am all for being competitive and I appreciate the pay-for-performance model. However you still have to question why they are effectively reducing their fee’s to 20% with a two-year guarantee? Will it net some easy sales? Probably. Will it dislodge a few customers during these tough economic times? Most likely. Will it devalue their service in the eyes or their customers? Absolutely. Will they be able to raise their fees in the future? Unlikely.

    That being said, you can always attract attention and business by being the low-cost provider. Historically though it is a short-term strategy that doesn’t work as service wanes and all you are left with are the troublesome customers who only shop on price. Sounds like desperate times are creating desperate measures.

  2. So it’s not really 10% is it? It’s 20%, with a different refund policy, essentially…. Nice headline.

    20% is not that unusual. There are plenty of paper pushers who charge that. They can hire more $12/hour researchers that way.

  3. Not to split hairs, but a 57% to 50% change is a 12.28% drop in confidence (not a 7% drop). Otherwise, I really like the “Schwelling Method” of pricing — for many reasons — not the least of which is that it allows clients to actually afford my services.

    FACT: Heidrick closed 5102 searches in 2007 for an average fee of $114,900. Who has that kind of money? I deal primarily with Fortune 500 companies at the executive level, and trust me, eyebrows get raised when +$50K invoices are sent in.

    Besides, the idea that I could get 10-20 of these 10% payments coming in each month is very appealing to me.

    Thanks, Schwelling.

    Harry Joiner

  4. Harry is right on the %- it’s (B-A)/A.

    However, I would love to see 50 payments coming in at 3% fee. That would make it really affordable for my clients. Or maybe I could do 150 searches a month at a 1% fee, that’s even better….

    But seriously, why would 100k in fee be too much? You have a 200mm company with no CEO. There’s a real chance that you could go from a 200mm co down to a 100mm co in a couple of years in this market. And you think spending 100k is too rich to ensure you get the right guy, or at least really increase the chance of that?

  5. Interesting topic and discussion. I read an article a few weeks back from David Searns about “microstaffing” which he talks about coming up with unique ways to serve the small business market who may not ever pay a contingency fee due to cost, even though they could use benefit from some level of service. For a small recruiting firm catering to smaller companies, this might serve a niche.

    As to pricing, there are many firms out there accepting all sorts of low placement fees, guarantees, etc. in the hopes of getting business. Maybe they are small shops delivering some level of service for their 10, 15 or 20%. Companies who deliver real value to a client will be able to justify 25, 30 or 35%, especially in executive placement where the impact of the placement will be obvious. I’m sure we could do some research and find all sorts of discount offerings out there. I don’t see it as a threat to my business. If the industry were to be put under massive price pressure over time where you had to meet prices to compete, I would see it as a commentary on the lack of value being provided.

  6. We are not talking about reducing fees here. We are simply talking about 1.) taking some of the client’s risk out of the transaction, and 2.) making the deal affordable. Do what you want — but history’s greatest marketers (Jay Abraham, Rosser Reeves, David Ogilvy, Gary Halbert, etc) have long preached the gospel of “risk reversal” to increase one’s business.

    Peace,
    MarketingHeadhunter.com

  7. If someone is providing value ,covering costs and making a profit then the numbers don’t matter a lot. My own prejudice has me too lazy to sell 30%,absolutely committed to 25% with an engagement fee,willing to do 25% contingency if I do not have to source and scornful of 20%ers and amused by anything less. But that’s just me…
    The only disturbing thing about any of this is that I know a chunk of the oddball pricing models are put forth by people too lazy or too stupid to sell the value of what they do. That’s when it bugs me…yet, I know there’s some guy somewhere who’ll think this about what I just wrote. Que sera sera.
    As Harry says though…taking on risk makes money…It is just gambling albeit experience is a good trainer for what to gamble on. Look at the insurance industry…

  8. I have read the bio. It is very impressive. But selling search and placement is far different than selling franchises or financial services…things he was a superstar doing. I wish him success because he has the guts to enter this business but, with over 25 years at this, I have seen this model (or very similar variations) at least ten times before. Zero succeeded. However, they also told the Wright brothers that if man was intended for flight…

    At the end of the day, cash flow is oxygen, and fees between 20 and 30 percent are the entire survival spectrum based upon this industry’s 60+ years of trial and error. At 20 percent, a firm barely covers costs at two placmeents per desk per month.

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