How much does it cost to retain a headhunter?

Updated: Oct 28


One of the criticisms I see frequently about retained search firms, and recruiters in general, is that pricing is unclear. You can go onto 100 recruitment firms’ websites right now and you will struggle to find 5% who even mention price at all.

It’s probably a bit unfair on recruitment. The same is actually true of most professional services businesses (see lawyers, accountants, training providers etc.)

So why the obscurity? In my experience it’s a mixture of fear and opportunism. But, that’s for another post.

Here I can give you an insight into what it will cost you under the most common pricing models in the market. That is, the three-tranche model and the fixed retainer model.

The Three-Tranche Retained Search Model:

This is the traditional payment structure for Executive Search firms the world over. By far and away the most common. Also known as the ‘third-third-third’ model. It is as follows:

· Payment tranche one – 33% of agreed fee as a retainer.

· Payment tranche two – 33% of the agreed fee upon delivery of a candidate shortlist

· Payment tranche three – the remainder of the agreed fee upon successful offer acceptance

Seems pretty straight forward. And it is. Though it’s not the most equally balanced in terms of risk for you. More on that in a bit...

So what would the cost of retainer be in this model. It depends on 2 things:

1. The overall fee percentage you have agreed

2. The value of the role you are needing to fill

So let’s say you have agreed an overall fee of 25% for the role, and the package on offer for the successful candidate is £120,000. The total fee for a successful campaign would be £30,000 and the fee structure would look like this:

· Payment tranche one – £9,900 (33%) as a retainer.

· Payment tranche two – £9,900 (33%) upon delivery of a candidate shortlist

· Payment tranche three – £10,200 (the remainder) upon successful offer acceptance

So the retainer cost will vary as a function of role value and overall agreed terms, but under this model it will always be 33% (roughly a third) of the overall fee.

The 25% overall fee in this example is illustrative, and it can vary massively. Some searches for c-suite roles can carry overall fees of 50% of package or more. Typically though searches are normally 25% - 35%. Rates of less than 20% or 15% are typically delivered by contingency recruiters, where the price is lower, but so too is the depth of service and chances of success.

Fixed Retainer Headhunting Model:

Fixed retainer models are, unsurprisingly, a little easier to quantify at the outset. They are usually structured in a three-tranche way too, but this time the initial retainer fee is a fixed amount, regardless of the role or the overall fee value. It would look something like this:

· Payment tranche one – Fixed fee as a retainer.

· Payment tranche two – Fixed fee upon delivery of a candidate shortlist

· Payment tranche three – the remainder of the agreed fee upon successful offer acceptance

Let’s say the fixed fee element is £8,000. On the example above (i.e. 25% overall terms on a £120,000 role) the structure would be:

· Payment tranche one – £8,000 as a retainer.

· Payment tranche two – £8,000 upon delivery of a candidate shortlist

· Payment tranche three – £14,000 (the remainder) upon successful offer acceptance

You’ll see that under this example the fixed fee model reduces your cost risk exposure, as the balance of payments is heavier on the delivery side (i.e. when a candidate actually accepts your offer).

But it’s not so simple to say fixed fee models carry less risk. If you were hiring a role with the same fee agreed but with a package of £75,000 on offer, it would be much riskier to go for the fixed model. Here’s how it would look.

· Payment tranche one – £8,000 as a retainer.

· Payment tranche two – £8,000 upon delivery of a candidate shortlist

· Payment tranche three – £2,750 (the remainder) upon successful offer acceptance

Under this example the head-hunter stands to make 85% of the overall fee, even if you don’t actually hire anyone at all.

So which way is better?

Neither. But I will caveat.

In general terms, the higher the overall fee, the less risk is carried by the fixed fee model. The lower the fee, the percentage based third-third-third model is preferable.

But there is a better way. You can find out how here…


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