- On Success
On Success pricing model is perhaps the most common pricing model for recruitment agencies. In this model, recruiters charge a percentage of the annual salary for each successful placement they make. Typically, this percentage ranges from 15% to 25% of the employee’s first-year salary, with some recruiters charging even higher.
Pros:
The on success model is great for startups that are rapidly growing and need to fill positions quickly. Since recruiters are only paid for successful placements, it incentivises them to work harder and find the best candidates for the role. This also means that companies don’t have to pay upfront costs and only pay for the service when it is successful.
According to TechCrunch, startups can benefit from the on success pricing model when they’re in a rapid growth stage and need to fill positions quickly. This model is best suited for companies that have secured funding and are looking to scale up their teams quickly.
Cons:
The on success pricing model can be expensive, especially for high-level roles. For example, if the recruiter charges 25% of the annual salary for a $200,000 per year executive, the cost would be $50,000. This can be a significant investment for startups that have limited funding and may not have the budget to pay such high fees.
According to Forbes, startups that are bootstrapped or have limited funding may struggle with the on success pricing model. This is because they may not have the budget to pay the high fees associated with this model. And whilst the short-term risk may be perceived as low, the impact high agency fees could have on the survival of the startup long term could in fact mean the on success model is indeed more risky; a case of ‘perceived risk’.
- Token
A token pricing model is when a company might purchase a “one-off” token which represents one placement. The token model typically operates as a one-off payment, with that payment representing a placement, and if the placement is not made on the first role the token was purchased for, this often rolls over into the next live role, until a placement has been made and the token redeemed.
Pros:
The token pricing model is great for companies that are looking to make several hires and don’t want to pay retainers or high fees via the on success model. The token system offers a great balance between flexibility and cost.
According to Business Insider, startups and scaleups can benefit from the token pricing model when they need to fill a small number of roles and don’t want to pay high upfront fees. This pricing model is ideal for companies that need to scale up their teams but have limited budgets, or in times of relative market uncertainty where a company knows they can commit to several hires, but cannot justify building a more robust internal talent team to cater for unforeseen future headcount drives.
Cons:
The token pricing model can be limiting for companies that need to fill multiple roles. If a company purchases one token, they can only use it for one placement. This means that they will need to purchase additional tokens if they need to fill more than one position. This can be costly in the long run. This being said, if the token is not redeemed on the first role, it is carried over – the downside comes in that the agency will not dedicate their resources to multiple roles, of the commitment from the client only spans one purchased token.
According to Inc., the token pricing model may not be suitable for startups (likely seed and earlier) that are experiencing rapid growth and need to fill multiple positions quickly. This is because they may need to purchase multiple tokens, which can be costly in the long run.
- Retained
In the retained pricing model, the company pays an agency a monthly retainer to find them talent. The monthly retainer is usually a percentage of the total recruitment cost, which varies depending on the agency.
Pros:
The retained pricing model is great for companies that are looking to fill multiple roles over a period of time. This pricing model allows companies to build long-term relationships with recruiters, who will work on a continuous basis to fill the company’s recruitment needs.
According to Entrepreneur, startups that are growing rapidly and need to fill multiple roles can benefit from the retained pricing model as it provides a continuous recruitment solution. This model allows startups to work closely with recruiters to build a recruitment strategy that aligns with their business objectives.
Cons:
The retained pricing model can be expensive as the monthly retainer can add up over time. This pricing model may not be ideal for startups that have limited budgets and can’t afford to pay a monthly retainer. Additionally, some recruiters may not be able to dedicate as much time to the company if they are working with multiple clients simultaneously.
According to Forbes, the retained pricing model may not be suitable for startups that are bootstrapped or have limited funding. This is because the monthly retainer can be a significant investment, which may not be feasible for these companies.
- Flat Fee
In the flat fee pricing model, the recruitment agency charges a flat fee for their services, regardless of the role or salary of the position being filled. This pricing model is becoming increasingly popular with some recruitment agencies, particularly those that specialise in niche areas.
Pros:
The flat fee pricing model is great for startups that are looking to fill roles at all levels within their organisation. This model provides transparency and predictability in terms of costs, making it easier for startups to budget for recruitment costs.
According to Recruiterbox, startups that are looking to fill roles across all levels within their organization can benefit from the flat fee pricing model. This model allows startups to fill roles at all levels without incurring high recruitment costs.
Cons:
The flat fee pricing model can be limiting for startups that are looking to fill high-level roles, as the flat fee may not cover the cost of recruiting for these roles. Additionally, the quality of the candidates that the recruitment agency provides may not be as high as those provided by agencies that charge a percentage of the employee’s first-year salary.
According to HR Technologist, the flat fee pricing model may not be suitable for startups that are looking to fill high-level roles, as the flat fee may not cover the cost of recruiting for these roles. Additionally, the quality of the candidates that the recruitment agency provides may not be as high as those provided by agencies that charge a percentage of the employee’s first-year salary.
- Hourly Rate
In the hourly rate pricing model, the recruitment agency charges an hourly rate for their services, which varies depending on the agency.
Pros:
The hourly rate pricing model is great for startups that are looking to fill roles on an as-needed basis. This model allows startups to work closely with recruiters to identify their recruitment needs and to build a strategy that aligns with their business objectives.
According to SHRM, startups that have unpredictable recruitment needs can benefit from the hourly rate pricing model. This pricing model provides flexibility and allows startups to work with recruiters on an as-needed basis.
Cons:
The hourly rate pricing model can be expensive if the recruitment process takes longer than expected. Additionally, some recruiters may not be able to dedicate as much time to the company if they are working with multiple clients simultaneously.
According to Monster, the hourly rate pricing model may not be suitable for startups that have a high volume of recruitment needs. This is because the costs can quickly add up if the recruitment process takes longer than expected.
Conclusion
Each pricing model has its own advantages and disadvantages, and the right model for your startup depends on your recruitment needs and budget. If you’re looking to fill one or two roles, the token or hourly rate pricing model may be the best fit. If you’re looking to fill multiple roles, the on success or retained pricing model may be more suitable. The flat fee pricing model can be a good fit if you’re looking to fill roles at all levels within your organisation.
As your startup grows and evolves, your recruitment needs will also change. It’s important to evaluate your recruitment needs on a regular basis and to work with recruiters that can offer a flexible pricing model that aligns with your recruitment objectives.
It’s also important to work with a reputable recruitment agency that has a proven track record of success in your industry. Do your research, read reviews, and ask for referrals from other companies in your industry.
In conclusion, the pricing model you choose for working with recruiters can have a significant impact on the success of your recruitment efforts. Each pricing model has its own advantages and disadvantages, and the right model for your startup depends on your recruitment needs, budget, and growth stage. By understanding the pros and cons of each pricing model, you can make an informed decision that will help you find and hire the best talent for your startup.
