This is one thing our industry has all wrong. We give away our temps at discount rates. Why, I have never understood. A temp on your payroll is a precious asset. In talent-short times (and they will return, trust me on that) I simply cannot fathom why anyone in our industry would give a substantial discount on the fee when a temporary employee goes permanent.
It’s just so illogical. A perm fee is a once-off hit which is nice when it happens, but we seem to forget that we have lost a tried, tested, and hard to replace revenue earning asset - our temp worker.
I have heard all the arguments on this from clients and they don’t wash. Let’s start with the classic “But you really should discount the permanent conversion fee because you have already earned so much margin on the temp”. What hogwash. The temp margin is for the temporary service rendered. The perm fee is for the acquisition of the permanent staff member. There is no leveraging one against the other. We need to be confident with the client, that far from a celebration for us when a temp goes perm, in fact the perm fee is scant compensation for the lost revenue that temp could have earned on future assignments.
Some clients will even try and use the ‘hire purchase’ argument. “But can’t you see” they say “ It’s like me renting a TV and then buying it. It’s always cheaper to buy a previously rented TV”.
Sounds neat, but its fallacious. A TV is a depreciating asset. A human being, in a contract assignment where they are getting trained, absorbing the company culture and learning the systems, is an appreciating asset.
The perm fee should be more, not less.
And one more thing…
Don’t pro-rata perm fees for long-term contact assignments. That’s dumb. We lose. Keep the distinction between temp and perm crisp and clear. (I know in some countries our hands are legally tied on this, but in many it’s just about negotiation.)
If it is a fixed-term assignment, it’s a contract role and therefore it’s a timesheet hourly rate with our margins on top, or it’s a fixed weekly or monthly rate. Don’t for a minute think “well it’s a six month role so we will take our perm fee and divide it by two because it’s half a year”.
Do the arithmetic!
A perm fee at 20% for 75,000 placement is $15,000
If a client wants to pay half the perm fee because it’s a six-month gig then you get $7,500
But the margin you will earn on a $75k level person on a temp basis for six months at a 55% markup is approximately $19,000
$7,500 vs $19,000
You can see why the client likes the idea!
Sure, if the client wants to pay a perm fee instead of margin for a six-month gig for example, that’s cool. But it’s the full perm fee. The client will still be paying less than the equivalent margin i.e. $15,000 vs. $19,000.
But you get a full fee and that’s fair and proper.
If you are not convinced, think about this. If you owned an investment property, and rented it for five years to a nice young couple, and then they wanted to buy it from you, would you give them a 25% discount off the sale price because of the rent they had previously paid? I don’t think so. So why do you give your temps away cheap?
Believe me on this. We have NOTHING else to sell, apart from our service and our talent skills.
Don’t give away the farm.
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Or you can end up with nothing. I am currently working a contract gig as a chemist with a major food and beverage company. My contract says they want 25k about 1/2 my annual salary to be made perm. There is no way on gods green earth they will get that much. If they insist I will take a perm gig elsewhere and they will end up with $0 and a rather disenchanted contractor.
My favorite analogy on this is, If you sell an investment property to your tenants that had been living in there for 12 months do you sell it at a reduced rate??
Greg. I could not agree more. However, the rise and rise of RPO’s in the UK is driving agencies into a cul de sac from where we cannot return.
Even smaller clients that hire direct recruitment managers are implementing draconian terms with ZERO conversion fees after 9 months. It is ridiculous but they say ‘walk away if you don’t like it’. These are the same organisations that do NOT allow hiring manager contact and expect us to do recruitment by psychic means.
We have been recruiting tech into investment banking for 19 years and the changes to terms in the last 5 years is so heavily weighted in favour of the client, it is almost making it untenable to work with them.
So, although I like and agree with your argument Greg, what are we to do?
In 2007 I was able to accomplish a relocation by moving from a temporary position with one division of the firm to a permanent job with another division in the area I wanted to move to, 100 miles away. My CV at the time clearly stated that this was my goal, and the agency placed me in the temp role knowing that I would, likely as not, leave as soon as I found a permanent job in my new area.
The vacancy was advertised both externally and internally, and I chose to apply externally, so that it couldn’t be said that I’d only heard about the vacancy because I was working within the firm already. The fallout from the agency wanting a fee for placing me in the permanent role rumbled on for over 6 months and almost caused my new boss to fire me rather than pay up.
This despite the fact that the agency had nothing whatsoever to do with me getting the permanent role, as I had seen it advertised and applied externally. The firm was already on my list of targeted employers for the area I was moving to as it was one of the biggest employers there and the temp position had nothing to do with the area of expertise I subsequently moved into. Nevertheless, the agency chose to spin it that I would not have been successful in my application if they hadn’t placed me in the temp role to start with…
No wonder there is such friction between agencies and employers!