LinkedIn has not disintermediated the role of a recruiter. The reality is, it has become a valuable tool that supports recruiters daily work. New technology in the HR Tech space like sourcing tools, chat bots, ATS integrations and automating background checks may affect certain parts of the recruiter process. Changes in pricing will disrupt the role of an agency recruiter.
For over 50 years the percentage fee on success model has become the standard, with fees for recruitment companies varying from 10 to 30% with the standard in startup world around 15%.
Headhunter fees are typically 15-30% (retainer model of one third upfront, one third on delivery of candidates and a third on closing) and they spend a lot of time and money building valuable relationships with candidates, though I hear even headhunter fees are under pressure as companies build in house recruitment functions and use tools and platforms.
Fixed fee work for services is now becoming common place. Linkilaw gives you access to a top lawyer for a fixed fee and a significant discount to a law firm. Purple Bricks have built a £300M company by offering a fixed fee service for listing your house for sale for £999. Should an estate agent really take a higher fee if the house sells over the asking price?
The economics of a recruitment agency are very simple. A recruiter typically has an annual £200k target, their salary is £30-50k and they can double their salary taking a % of the fee. Factor in the cost of Linkedin recruiter licence and other tools and overhead and the gross margin on a recruiter is around 50% Contingent recruiters have to work on 10 plus roles at anytime to hope they place 2-4 candidates per month at an average of £4-10k per role to hit their quota of £17k-£20k per month. (This varies depending on industry and types of role but its a variation of the same maths).
The platform model that Hired.com started and other new players such as Vettery (sold to Adecco for $100M) is challenging this classic pricing model. Vettery still offers a 15% fee which for the US is a 25 to 50 percent discount on other US agency recruitment firms. They don’t require a 360 recruiter so they get efficiencies by curating candidate pools and having customer success functions which can look after hundreds of clients and candidates – dedicated to making sure candidates or clients are looked after.
Moving away from a people-heavy recruitment model has allowed platforms to charge fixed annual pricing, which offers a significant discount versus paying individual fees per candidate. At Kandidate we have launched 2020 fixed fee pricing: £20,000 for 10 roles placed in 12 months which saves any company £55,000 (10 X roles at £50,000 at a 15% recruiter fee). You still get access to a dedicated talent partner for screening and scheduling and use of our research team (as some quirky / hybrid roles still require detailed research). The difference is our talent partners can work on 4 or 5 times as many roles as a traditional recruiter.
Companies can hire without being stung by eye watering fees. They can budget hiring and get a higher service of a dedicated talent partner, platform and research team. We hope SaaS pricing will disrupt recruitment for the better.