Jeff’s On Call!: Converting From Contingency to Retained Search

This week’s inquiry comes from Brigitte Welters:

Dear Jeff,

First of all, I really appreciate your advice and expertise concerning placement very much. I hope you can advice me on following subject matter:

A short introduction:  I manage a headhunting agency which is specialized in placement of professionals. This company is based in the Netherlands and we place mid-level to high-level professionals in the legal and financial field in the Netherlands. We work mainly for international firms. These clients are very appealing to our candidates since they offer interesting career opportunities and development for them.
Our clients set very high standards; multiple in-depth interviews and tough assessments are the rule. Working in this field of placement is very interesting and challenging; not one day is the same.

We now work for the largest part on contingency basis. Yes our clients are happy with our services, however, we now want to work for the largest part on retained fee basis. The reason we want to convert is that contingency poses many risks for us.

My question is how to convert contingency-based services to a retained fee business?

Thanks so much for your advice,

Kind regards,

Brigitte

Hi Brigitte,

Greetings to the Netherlands!

We’re anywhere on the placement planet, and on this JOC we’ve really got a lot of ground to cover. I’m delighted to help.

But before we go any further, close this screen.

Then:

1. Go to www.placementlaw.com.
2. Click the Placement Manager’s Law Quiz button in the middle of the bottom row.
3. Take the PMLQ.
4. Click the Answers to Placement Quizzes button at the end of the bottom row.
5. Grade yourself.
6. Get back to this screen.

If you’ve only done contingency-fee search, retained search looks like the ultimate way to make placements. You think you’ll feel more wanted, more secure, and more professional. Then you snag your first retained search. You’re delirious. But soon you think, “Am I retained or chained?”

I’ve done contingency-fee and retained search myself in addition to working with hundreds of recruiters in making the transition.

Let’s look behind the myth:

Contingency-fee recruiters may not have the marketing prestige of retained search, but they make far more money. (That’s why “b” is the answer to Question 39 of the PMLQ.)

This should come as no surprise, since the flexibility frees them from exclusivity, reporting requirements, and unrealistic demands from a front-fee client.

From the client’s standpoint, there are only four reasons to pay in advance:

1. The search is extremely sensitive and confidential.
2. The client really wants you to work the search on an exclusive basis.
3. The search is too difficult for a recruiter to take on a contingency-fee basis.
4. It’s cheaper than paying a percentage contingency fee.

For these reasons, only about 20% of the recruiters who say they do retained search actually do. Of these, only about half receive anything but expense reimbursement.

So basically it’s a marketing device strictly for image.

Let’s look at the five ways retained search has you chained:

1. It defies human nature. Would you pay a recruiter in advance? Is the client bargaining for the smoke or the hire?
2. It makes you feel either guilty or angry as you exceed your break-even point and are then working for nothing, with negative thoughts about the client and search at the very time you need to be positive.
3. The recordkeeping, reports, and justification required from the larger companies that tend to pay retainers can waste time and drive you crazy.
4. You lose the one thing that all truly successful professionals have in common: The ability to choose what you want to do.
5. Recovering retainer balances is a major challenge if the position hasn’t been filled directly by you. In fact, the client can be expected to demand return of the retainer.

Add to this that retainer clients are very fussy and capricious. Generally they wouldn’t be in the position of having to pay retainers if they didn’t keep changing the specs or even the positions!

He-l-l-l-o Brigitte! Are you still there? Okay. Now if you still want to try retained search, fine. Just avoid these four things:

1. Being limited to only one position. Searches invariably yield candidates in related disciplines who can be placed with the client.
2. No payment for hiring through other sources. This includes internal referrals, direct candidate solicitations, Internet responses, and advertising replies. All candidates should be interviewed by you, then referred if qualified.
3. Being solely responsible for reference checking. It’s fine if you care to check references on behalf of the client. But checking references that way has you guaranteeing their veracity. Include language in your retainer agreement that the client will not rely on the results in its hiring decision, or will check references independently.
4. Guarantees on performance. You’re being paid (at least partially) for effort rather than results. So a court will look to see your activity when the client demands a refund (and you’ve probably lost a lot of time). If you want to avoid returning the retainer, protect yourself by calling the partial payments “non-refundable progress payments.”

There you have it Brigitte. Start out with one retained search for a known, liked client. See how it works out. If positively, try another . . . then another. Make the transition slowly. If it’s not fun, stop doing it. Fun makes placements. Actually, fun makes everything!

Best worldwide!

Jeff

If you have a legal question you’d like to have Jeff answer here on The Fordyce Letter, check out Jeff’s On Call! and submit your question.