Should You Reduce Your Fees or Margins?
(Editor’s note: the following article is by industry trainer and speaker Barb Bruno, CPC/CTS of Good as Gold Training. Barb has served as a keynote speaker at recruiter networking events like the Top Echelon National Convention and Fall Conference multiple times. She has also presented webinars for the Top Echelon Recruiter Coaching Series. Barb is a trusted voice in the recruiting and staffing industry, as well as a valuable contributor to the resources that Top Echelon provides.)
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Often your competitors may quote lower fees and bill rates. Many recruiters want to lower fees and margins in order to overcome the price objections. Some clients may offer to give you multiple job orders or contracts if you lower your fee or bill rates.
This advice does not refer to VMS (Vendor Management System) clients. A VMS client does not provide room for negotiating and provides you with guidelines you must follow. They almost always limit the number of candidates you can submit and do not allow you to back-fill candidates who are screened out. In most instances, you do not have contact with the actual hiring authorities.
If you are working with VMS clients, you must track the revenue and profits generated by each client. Continue to work with clients who generate profits and walk away from clients that don’t.
For non-VMS clients, you must become proficient at overcoming objections. Objections are requests for more information and should be viewed as a buying sign. Your business exists to generate profits and you must protect your profits and GMP (Gross Margin of Profit). When you reduce your recruitment fees or margins, you also negatively impact your income.
Margins in a candidates’ market
In this candidate-driven market, you should not reduce your fees. Multiple job orders or contracts do NOT guarantee multiple placements or fills. Why are there so many positions or contracts available? Could it be a turnover issue or negative working conditions?
You could explain that your team works on a base plus commission and you would not want to put your reputation on the leftover candidates that would be presented due to the non-competitive fee or lower bill rates. Ask your client these questions:
“If I reduced my fee or bill rates by 50% and presented candidates who could only do 50% of the job, is that a good deal?” Obviously, the answer is no.
“What if I reduced by fee or bill rates by 25% and presented candidates who could only do 75% of the job, is that a good deal?” Obviously, the answer is still no.
“If I present a candidate who has 100% of the credentials you need and could hit the ground running, isn’t that the return on investment you want?” Obviously, the answer is yes.
You also need to provide the best talent in your area of specialization to your clients vs. the best talent in your database or from job boards. If you truly represent the top talent in your niche, then you will get paid full fees and high margins.
If you want to reduce your fees, then you might offer a reduction on every third placement in a calendar quarter. I didn’t say every third job order, I said every third placement.
You might reduce a flat predetermined amount for multiple contracts or assignment fills. You must believe that you more than earn the rates you quote.