Why does the 100% success fee model generate additional costs for the client?

Nowadays, many companies, driven by cost savings, prefer to use a 100% success fee model in cooperation with recruitment agencies. However, there are a number of factors that often play a role in a customer’s failure to achieve the intended goal. Despite the fact that there is no fee for the service, but only for the effect itself, there is a high risk of additional costs associated with the protracted process, which can significantly exceed the agreed amount of remuneration with the agency.

What is the success fee model?

The name itself indicates that in the success fee model the remuneration to the service provider is based on the result achieved. In the case of a recruitment agency operating on a success fee model, the client’s hiring of the proposed candidate is considered the result. The success fee model thus emphasizes the achievement of the goal rather than the delivery of the service. Thus, the end result is of greatest importance, not what happens during the process.

In the 100% success fee model, the client is only charged when they hire the candidate proposed by the recruitment agency. Previously, it has not incurred any expenses related to the service. Neither for initiating the recruitment process nor for selecting candidates. So it can be said that it costs nothing to start working with an agency.

Why is a 100% success fee highly risky?

Working with a recruitment agency that works on a 100% success fee model can be ineffective for several reasons:

  • Abandoning projects.

Receiving commissions only after an employee is hired prompts agencies to focus only on easy projects. As soon as he realizes that it will be difficult to succeed in the project he is carrying out, he very often stops carrying out any activities. That’s why only about 25% of projects implemented under the success fee model end up in employment. On the other hand, the prolonged absence of an employee on the client’s side raises costs related to the lost revenue it could have generated for the company during that time.

  • Conflict of interest.

The agency may seek to maximize its profits, even at the expense of the client’s needs. If an agency focuses solely on finding a candidate to hire, it may overlook important factors such as organizational culture or the client’s long-term goals. Submitted candidates are also not exclusive to the client, so the risk of dropping out of the process is high.

  • No relationship to service quality.

The agency will receive a commission once the candidate is hired, even though its contribution to the recruitment process may have been minimal. Such a model does not reward agencies for the quality of their work, but only for the result. Therefore, it shifts much of the selection and screening of candidates to the client, so that as much of the process as possible is not on their side, resulting in more work for the client’s HR department and Hiring Managers. For this reason The company incurs about PLN 4.500 in candidate processing costs due to shifting most of the tasks to the client’s team.

  • Costs to the customer.

Although the success fee appears to be a less binding solution, in practice the cost of recruiting employees under this model turns out to be higher. Recruitment agencies have to compensate for losses incurred in other projects with high commissions on clients who manage to deliver candidates.

Prepayment in Talent Place model

For Talent Place, on average, as many as 76% of recruitment projects in 2022 resulted in employment. In recruitment agencies operating on a 100% success fee model, this rate is only 25%. This affects the approximately 30% higher success fee cost, as agencies compensate for their failures in companies where they have closed a project. Our community of more than 200 recruiters delivers a set of vetted candidate recommendations on merit and organization, even within 7 days.

Talent Place operates on a prepaid model which allows it to quickly find perfectly matched candidates. On average, we need only 2.6 recommendations to hire one employee. In the success fee model, the number is as high as 30 recommendations for a single position, so agencies often shift most of the tasks to the client’s team, which creates about PLN 4.500 of additional costs generated when candidates are processed by the client’s internal HR department.

Is it worth using the success fee model?

Most recruitment agencies operating in the market operate on a 100% success fee model. This is only a seemingly favorable option for the entrepreneur, as it generates a high risk of failure and additional costs. It is important to remember that recruitment is not about the lowest possible cost, but about finding an employee who will properly complement the company’s team and stay with the company for a longer period of time, being able to develop their career.

Anna Minkisiewicz

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