Regular readers of my blog will know that I have predicted for some time that clients will expect more from recruiters as the market recovers. I have said that we can expect pressure on our fees, particularly as employers invest in other ways to access talent.

But it’s also true that market forces will prevail. At Firebrand Talent Search we have seen a marked easing in pressure on our fees and in fact in some countries, fee levels are on the rise.

In Singapore for example, where Firebrand has a strong business in the marketing, media, advertising and creative sectors, we are finding that many clients have taken the focus off fee percentages, and are now concerned entirely with accessing the best talent.

In 2009 our fees dropped to between 20% and 25% in Singapore, while now 25% and beyond is routine, and in many cases we secure retainers too, which makes for a much better business partnership.

In Australia we have not seen fees rise in our Firebrand offices, but we have seen the downward pressure on fees ease significantly and we now secure all our work at our term sheet rates. Clients are aware the fight for talent is hotting up.

Japan too has seen fees rising back to 30% and beyond. In one particular case, a client of Firebrand is offering “bounty” fee levels to ensure they capture the best talent. This gaming software business routinely offers Firebrand 40% and 45% fees for specific roles, for a defined time period – usually three months.

This month this client offered us a 60% fee (on a USD $60,000 job!) and our Tokyo team promptly filled the order, securing a fee in the vicinity of $40,000.

This trend is fascinating to me. I have never really seen a situation where the client is driving fees upwards. We would NEVER suggest a 60% fee. Yet this clients’ rationale is “Top talent is hard to find. We want the best. We are competing with other employers. We want the recruiter to be motivated to find us the best.”

And it’s working. The candidate we placed into this role had very rare user interface skills and the Firebrand team found him, a Japanese speaker, in Melbourne!

Once again the true value of our business is laid bare.

Access to talent.

That’s where it’s at.

Last week I blogged on how competing on speed and volume alone was not the way to be successful as a recruiter over the long term. Today I turn the attention to price.

The question of fees and margins in our industry is a sensitive and difficult one. The fact is that clients resent our percentage-based permanent fees structure, and it’s easy to see why. What is harder for both clients and recruiters to see is that it’s the very pricing system our industry operates on that inflates our fees.

Contingent, success-based fee structures drive costs up for clients because essentially clients who hire through our industry are actually paying for all the time recruiters spend on orders they don’t fill.

True story.

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But even so, our industry is largely clueless when it comes to justifying our fees. The conversation seems to gravitate quickly to ‘our fee’ vs. ‘the competitor’s fee’. There is nowhere to go when you are comparing 20% to 18%. It’s an empirical fact 20% is more than 18%. So typically those fee negotiations are short and result in a big ‘lose’ for the recruiter.

In fact the conversation needs to be steered on to value. We need to talk about differentiators and benefits we can bring to the client that are unique. And increasingly we should focus those value adds in the area of talent acquisition. Really, quality process should be a given. The real value in your fee resides in your ability to bring better qualified talent to the clients business.

Competing on price alone is the final competitive weapon of he or she who has nothing else to offer. And it also results in the very essence of what we do as an industry being devalued in the eyes of our clients.

Don’t drop your price. Up your offer.

Last week I blogged about how you need to move the focus away from dollars and percentages when clients negotiate fees, and on to your value and your differentiators.

One of the comments on my blog from Matthew Lancey raised the point that sometimes clients keep pushing, and they say something like “but your competitors charge less”.

And it’s this use of the “C” word that often scares recruiters.

The “C’ word? Competitors. I love it when clients use that word. If they do start to talk about competitor’s low fees, your response is to ask…

“Can you tell me about a situation, Ms Client, where you were charged less than the fee I am suggesting today, where you got the level of service and the calibre of talent you want – on a regular basis?”

True, this is a gamble, but the fact that you are there, in the client’s office, taking the order, or even on the phone taking the order, means that it is most unlikely the client is happy with their current supplier. In fact it amazes me when a client spends 20 minutes bagging another recruiter, and then when I quote my fee – he says, but the other recruiter only charges 15%!

That’s is the time to remind the client that a low fee, quoted by a supplier who does not deliver, is not a benchmark you will measure your fees against. And nor should the client.

Sometimes the client pushes hard for a reduced fee. When that happens, don’t feel pressurised. It’s a purely commercial decision – and it’s your decision to make. Is this client and this order so attractive it is worth taking a lower fee for?

Remember this before you discount next time. Don’t think of the fee only as dollars gained or lost – think of the fee as what your service is worth. A discounted fee means a discounted you – never forget that.

But sometimes you feel it is worth a compromise to secure a particular opportunity. In these cases I emphasise one golden rule.

Never reduce your originally quoted fee without extracting a concession from the client.

In other words if you say, “My fee is 20%”.  And the client asks for a discount. And you quickly respond with “OK how does 15% sound?”. You have just signaled to the client that you never believed in your value proposition and your service in the first place. You will struggle with getting his respect ever again – and you will never get your fees back up.

So if you reduce your fee, always ask for something in return – exclusivity maybe, client paid advertising maybe, client gives you multiple orders maybe, or maybe you waive the guarantee.

Make sure the negotiation involves both sides giving. This way the equal partnership is in tact.

So is your self-esteem by the way. And in our business, that’s crucial.

It’s a fact of recruiting life that clients will push you to negotiate your fees. And with so many recruiters quick to drop fee percentages to secure briefs, that can be a hard discussion to deal with.

The starting point for successful fee negotiations is, strangely enough, to get the conversation off the fee percentage, and on to the question of what it is your fee is actually for.

And of course, bundled up in that conversation, is your ability to sell your differentiator. What have you got and what do you do that gives your client special value? That’s where you want to focus. At Firebrand Talent Search we emphasize our niche focus, our unmatched access to creative, marketing and digital talent, our multiple branches in Asia Pacific and Europe, our specialist knowledge and understanding of clients needs, our proprietary testing software which means we know candidates have the design skills we say they do, and then we wrap all this up in 110% money back guarantee.

But all recruiters will have differentiators, and it’s important you know how to articulate them.

So when a client does ask you to drop your fee, go through your entire recruitment process explaining all the things you do to secure the right person. Take your time. Start at the beginning and don’t miss anything out. Talk about your screening, your interviewing, your talent generation strategies such as social media and networking. Talk about your database and the fact you have several offices tapping into talent. Explain how you act as an advocate for the client, and how you will qualify each candidate in terms of fit, salary and skills. When you drill down on this, you find we do a lot!

That’s the point. Tell your client.

Then, and only then, ask the client why she feels a reduced fee is appropriate. This is important. Get the ball firmly into the client’s court. The client is asking for a discount. She should be squirming – not you. When it comes to fee discounts you don’t have to justify why not – she has to justify why!  It’s a shift in the dynamic and it’s very powerful indeed.

Its not as simple as this of course, many clients will continue to push for a fee discount regardless, and then you have to make a commercial decision. But the starting point is not to haggle over a number. Get the attention of the service you provide.

Talk about what you do, explain your process and your insights and your connections and your value adds.

That’s a far better place to start a discussion on discounts!

Here is a prediction. As the market recovers the first impact on our industry will be a revival of the temp and contract market.

Employers will see increased work volumes as the economy recovers, but will “dip their toes” into the labour market at first, hiring flexible solutions initially. But then, as momentum is gained and confidence returns, they will start to hire permanently. But the first place they will go for their permanent hires will be to transition tried and tested contractors onto their permanent payrolls.

And then it will happen! The dreaded “temp to perm” fee debate.

And 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.

In a recent “Savage Truth” blog posting, I wrote about negotiating perm placement fees. Let’s turn our attention now to the question of negotiating temp Bill rates, and the challenge of maintaining our margins.

In this recessed environment, your clients are going to be screwing you for all they are worth on Bill rates. Sadly, many suppliers in our industry will, out of desperation, roll over and drop their rates at the first sign of client push-back.

Some mark-ups I am seeing staffing companies offer in Australia, the UK, and elsewhere, are shocking, and suggest a desperation bordering on hysteria. Even in a downturn we must provide our services at a profit. And it can be done. While it’s true that some Aquent margins around the world have been squeezed during this slowdown, in Australia we have actually pushed our margins UP in the past 12 months, some of that achieved by dropping PAY rates to temps-which, just quietly, is something you must do.

The “big secret” when it comes to negotiating with clients about temp Bill rates is to shift the clients focus from the RATE – to the COST!

If you allow all the focus to remain only on the $ value of the hourly rate, then you have very little negotiating leverage. The client quotes another agency who will “charge less, for the same job.” If you argue about the hourly rate only, you have nowhere to go, because less $ is less $!

But if you focus on the other part of what the client said, then you have plenty to discuss. I am referring of course to where the client says another agency will charge less “for the same job”. That’s the weak spot to tackle in clients’ argument. Will the client indeed get “the same job” done by the cheaper option?

NO is our argument, and it could cost the client plenty.

So for example, let’s say you are suggesting to client that a mid-weight freelance graphic designer is going to cost her $50 per hour. The Clients says “That’s expensive – I can get a graphic designer from your competitor for $45.” You see, the client focuses on the rate only.

Most temp consultants cave in at this point. They reduce the Bill rate to win the assignment. That teaches the client that our rate is negotiable, and it immediately reduces our margin, and that’s bad!

A more appropriate strategy is to focus the client on the comparative COST of the entire project. Get the focus off the hourly rate. How? Well, like this usually works…….

“Ms Client, all our graphic designers have been interviewed, screened and tested for both their skills and their attitudinal fit to do freelance work. In the case of the person I propose to provide you for this role, she has worked for us many times before, and I have many glowing testimonials on the calibre of her output and her initiative and accuracy. Ms Client, the person I will provide you will come in, sit down and start being productive from the first hour. She will make minimal mistakes and the quality of the outcome will make you very happy indeed. What’s more she will do this project within the two-week time frame you need. To get someone of this calibre we need to pay $50 per hour.”

But $50 x 8 hours x 10 days = a total cost to you of $4000.

“If you take the cheaper option Ms Client, you may well pay $45 per hour, but it is most unlikely you will get the calibre of individual and the quality of work I am promising you here today”

“Indeed, your $45 an hour person is likely to take longer to do the job, absorb more of your time, and quite possibly make more mistakes.”

So $45x 8 hours x 15 days = a total cost to you of $5,400

“The so-called ”cheaper” option Ms Client, will cost you far more!”

It’s the quality work done at the best cost that I am offering you, and that’s why I am suggesting my talent at $50 is in your best interests.”

What day can she start?

That’s the way to sell quality temps! At Aquent we work with the cream of creative and marketing talent. Our screening process ensures that. Porsche does not compete on price with Hyundai. They are both cars with engines, seats and CD players. But people pay far more for Porsche, because the value is there

Same with our temps. If your client wants a great freelance experience, and the client wants their problems solved quickly and accurately, the price may be a little higher, but the value will be measurably better!

Market slowdowns can be really scary. Suddenly the boot is on the other foot. Candidate supply frees up and clients have choice. And how they love to leverage that power! And of course the first place we feel the pressure is on fees and margins. And it’s true too that many of todays recruiters, brought up in the boom years, have never really had to deal with industry-wide price cutting, where every job order turns into a fee negotiation.

There is no “magic bullet” when it comes to fee negotiations. It is true that when the market softens the power shifts more to the buyer. But recession or not, you need to do everything you can to push back against margin degradation. And the way to tackle that head on, is talk about your value… not about your price.

The secret is to sell your differentiator. What have you got, and what do you do that gives your client special value. At Aquent we emphasise our niche focus, our unmatched access to creative, marketing and advertising talent, our multiple branches, our specialist knowledge and understanding of clients needs, our proprietary testing software, and then we should wrap all this up in 110% money-back guarantee. Explaining differentiators gets the focus off price, and gives you something meaningful to respond with when the client quotes competitors crazy fee levels

But you need to do more. When a client forces the issue on fee, go through your entire recruitment process explaining all the things you do to secure the right person. And I mean everything. The searching, the adverting, the screening, the collaborating with colleagues, the interviewing, the reference checking, the testing, the “selling” of the clients company to the best talent, and on and on. The biggest reason clients want to push down fees, is that they don’t perceive the value in what we do. And they don’t perceive the value because they don’t actually know what we do to earn our fee. And they don’t know what we do, because we, stupidly, don’t tell them!

It’s like looking at an iceberg. 10% of an iceberg is visible above the waterline. The rest, 90%, is out of sight. So it is with what the clients see of our work. 90% is out of sight, so the client does not factor it into his perception of “value”. So tell the client everything you are going to do to solve his staffing problem, chapter and verse! Then, ask the client why he feels a reduced fee is appropriate. This is important. Get the ball firmly into the clients’ court. The client is asking for a discount. He should be squirming — not you. When it comes to fee discounts you don’t have to justify “why not” — he has to justify “why”! Often the client will stumble a bit at this, but usually they say something like “your competitors charge less”

This often scares recruiters. But there is no need for fear. Ask, “ Can you tell me about a situation where you were charged less than the fee I am suggesting today, where you got the level of service and the calibre of talent you want — on a regular basis”

This is a gamble, sure, but the fact that you are there means that it is most unlikely the client is happy with their current supplier.

Sometimes the client pushes hard for a reduced fee. It’s going to happen in this market all the time. Don’t feel pressurised. It’s a purely commercial decision — and it’s your decision to make. Is this client and this order so attractive it is worth taking a lower fee for?

Remember this before you discount next time. Don’t think of the fee only as dollars gained or lost —think of the fee as what your service is worth. A discounted fee, means a discounted “you” — never forget that.

But sometimes you will feel it is worth a compromise to secure a particular opportunity. In these cases remember one golden rule.

Never reduce your originally quoted fee without extracting a concession from the client.

In other words if you say “my fee is 25%”. The client asks for a discount. You say “OK, 20%. You have just signaled to the client that you never believed in your value proposition and your service in the first place. You will struggle with getting her respect ever again — and you will never get your fees back up.

So if you reduce your fee, always ask for something in return – a retainer perhaps, exclusivity maybe, client paid advertising maybe, client gives you multiple orders maybe, or maybe you waive the guarantee.

Make sure the negotiation involves both sides giving. This way the equal partnership is in tact. So is your self-esteem by the way. Important considerations in a tough market.

Greg Savage
14 June 2009

Coming soon to “The Savage Truth” : “NegotiatingTemp Rates”