Most recruitment firms use either a “contingent” or a “retained” business model.
Contingent recruitment is the typical commercial model for most junior and mid-level roles. This business model simply means that the recruiter is only paid on “success” – when the candidate accepts an offer.
Contingent recruiters typically charge a percentage of salary, with 15-25% of the salary of the placed candidate being pretty typical in the industry. Another important feature of working with contingent firms is that they often don’t have “exclusivity” with their customers. This means that a client often hires multiple contingent recruiters at once, with only the firm that places the placed candidate getting paid for their work.
Because only the successful firm gets paid, and that firm only gets paid on placement, it creates a lot of financial risk for the recruitment agency. Consequently, contingent recruitment firms cannot afford to commit too much time or resources to each project, as they might well be paid nothing for their time.
Typically, contingent firms will therefore have two main methods of finding candidates; advertising a position or searching their database for candidates from previous assignments
There’s definitely a big advantage to specialism when it comes to contingent firms. A contingent recruiter who has a strong track record of hiring software engineers will have a good network of candidates to tap into, indeed candidates might approach them directly when they are looking for something new, and they may have built a strong reputation in the market, which allows them to “suck in” candidates.
However, the downside of contingent recruiters is that they sometimes lack specialism (and rely on adverts for success – which is very hit and miss) and they are also much less likely to thoroughly map a market, or reach out to candidates they don’t know already.
By contrast, most “headhunting firms” operate under the retained model. This means that they require money up front, and not purely on success. Furthermore, most executive search firms (a synonym for headhunting firms) will insist on exclusivity as part of their commercial terms.
Exclusivity and retained fee models are essential for executive search firms as they have a much more heavyweight process compared to contingent firms, and if they didn’t have exclusivity, or if they were only paid on placement, it would create too much financial risk for them. For a more detailed information on how executive search firms charge their clients please read our article on “Commercial Models”.
Headhunting firms rarely advertise positions, but rather systematically map the relevant market, using bottom up market research. They will often create a list of companies, segmented by industry and sub-sector, and identify all the relevant candidates within them. This document is often called a “Target Landscape”.
Like contingent firms, retained headhunting firms will also look at candidates from previous assignments and will often have deeper sector or functional specialism. If executive search firms were only paid on placement, they would be risking too much money committing to thorough market research. Typically they will walk away from projects that don’t offer exclusivity or a portion of the fee up-front.
Executive search firms will firstly identify a target group of candidates using their Target Landscape and network from previous projects. This list, depending on the role, can often be pretty substantial. Over 100 candidates is very normal, and sometimes these lists will be over 200 people. Those candidates will be prioritised and usually have an initial approach call over the telephone to get them excited. This is usually followed by an interview with the headhunter as executive search firms also assess candidates, they don’t just “send CVs” like a lot of contingent recruiters. Executive search firms will also guide the clients and candidates through the process.
All these elements of the executive search process and fee structure will be covered in more detail elsewhere, but it’s worth noting that whilst retained executive search firms typically offer a higher quality, more thorough recruitment process than contingent firms, this also comes at a higher cost that makes executive search typically best suited for relatively senior and important hires. For this reason, most executive search firms work on roles that pay a salary of $150k+.