Did you know that there are four different types of pricing methods in recruitment?
Choosing the right one for your needs can set you up for success.
Think of the different pricing methods as different levels of commitment.
In some cases, it’s best for you to have less commitment from your recruitment partner. Yet, sometimes you need a fully embedded recruitment service for your company.
Sounds confusing? Don’t worry, in this article, we’ll go through the pros and cons of the following pricing methods:
- Performance-based pricing
- Hourly-billed pricing
- Installment pricing
- Recruitment process outsourcing
Let’s jump right into it!
1. Performance-based pricing
The pay-for-results pricing method is popular when collaborating with external recruiters and agencies.
How this pricing model works:
- You collaborate with more than one agency/external recruiter. You only pay when their delivered candidate results in a hire.
- Depending on the agency, you’ll usually end up paying 15-30% of the hired candidate’s yearly salary.
Examples:
Recruitment agency hiring a software engineer in Tallinn – 15% (approx. €6000) fee.
Recruitment agency hiring a data analyst in London – 25% (approx. £15000) fee.
Freelance recruiter hiring in Berlin – €5000 fixed fee.
What are the advantages and disadvantages of this pricing model?
Advantages:
- Lowered risk because you only pay for the result.
- It’s fast. You get to see many candidate profiles as soon as possible.
- There’s a 4-6 month guarantee period, during which you can get a replacement candidate, in case the hire doesn’t work out.
- You don’t pay for the recruitment tools.
Disadvantages:
- Recruiters focus on speed over quality, which leads to many unsuitable candidates.
- The agency/external recruiter lacks the motivation to do quality work, everything is set up to deliver as fast as possible.
- Everything is related to delivering a hire, with no focus on candidate experience or enhancing employer branding.
- Motivation to take on difficult roles is low.
- Agencies don’t make any extra payments for tools needed to find the best candidates.
Commitment level from recruiter: Low
When should you consider this pricing method?
- When you want an extra source of candidates
- When you prefer candidate quantity over candidate quality
- When you need to fill a role as soon as possible and need candidates from different sources
2. Hourly-billed pricing
How this pricing model works:
- You hire an external recruiter or agency and pay an hourly rate.
- Usually, there’s an agreed commitment about how many hours per month.
Examples:
Recruitment agency – 30 hours x €100 – €3000 fee per month.
Freelance recruiter – 40 hours x €75 – €3000 fee per month.
What are the advantages and disadvantages of this pricing model?
Advantages:
- You get to prioritize different roles.
- You can focus on a specific part of the recruitment process: sourcing, interview training, creating recruitment processes, and overall consulting.
- You can hire a part-time person based on your needs.
- You don’t have to pay all in one go.
- If you have many roles, paying an hourly rate could end up being cheaper.
- You pay for the work that’s done.
Disadvantages:
- Nothing guarantees you a hire. You might pay an hourly rate for months, or even years, without any results.
- In the long term, using this method will be expensive. It might be cheaper to hire an in-house recruiter.
- The external recruiter doesn’t have the motivation to perform quickly, because they’re paid on an hourly basis.
- Usually, there’s no guarantee period.
- You have to pay for the tools that the recruiter uses. For example, LinkedIn Recruiter, job adverts, etc.
Commitment level from recruiter: Medium
When should you consider this pricing method?
- When you don’t have an in-house recruiter
- When you need help with specific tasks (sourcing, candidate profile mapping, conducting interviews etc.)
- When you have multiple similar roles available
- When you plan to work with the external recruiter for a long period
3. Installment pricing
How this pricing model works:
- You’ll usually end up paying 15-30% of the candidate’s yearly salary.
- Payments consist of 2-3 installments. In recruitment, it’s common to pay the deposit (to get the project started), shortlist (when candidates are sourced and interviewed), and commission (when the candidate is hired).
Examples:
Data analyst role – Tallinn – 50% deposit, 50% commission. The total cost of €7000.
Software engineer role – Berlin – 25% deposit, 25% shortlist, 50% commission. The total cost of €10000.
What are the advantages and disadvantages of this pricing model?
Advantages:
- You pay for the commitment. You have the right to set deadlines and ask for recruitment advice. The focus is on the partnership.
- Allows you to better plan your hiring process.
- The recruiter acts as a part of your team and takes care of the candidate experience.
- The recruiter is motivated to close the role and send you the best candidates.
- There’s a 4-6 month guarantee period, during which it’s possible for you to get a replacement candidate, in case the hire doesn’t work out.
- You don’t pay for the recruitment tools.
Disadvantages:
- There’s a risk of making a payment without having received anything back.
- In case you see that the partnership doesn’t work, you have already made payments.
Commitment level from recruiter: High
When should you consider this pricing method?
- When you don’t have an in-house recruiter
- When you’re looking for a long-term recruitment partner
- When you need to build recruitment processes from scratch
- When you need extra help with filling some roles
- When you want a dedicated recruiter who will almost exclusively focus on your company
4. Recruitment Process Outsourcing (RPO)
Recruitment Process Outsourcing (RPO) is a strategic approach to talent acquisition in which an organization partners with an external service provider to manage some or all aspects of its recruitment process.
How this pricing model works:
- You pay a fixed monthly fee for a certain period, depending on how many positions you need to fill.
- You’ll have a team of recruiters working for you, each dedicating a set number of monthly hours.
Example:
You need to hire two customer support specialists, two operations specialists, an accountant, and an office manager.
You have a €9700 per month subscription with an RPO provider and 2-3 recruiters working for you for up to 120 hours per month.
The RPO provider fills the roles within 90 days, which means you’ll pay:
3 months x €9700 = €29,100 for six roles.
What are the advantages and disadvantages of this pricing model?
Advantages:
- Cost-efficiency – outsourcing recruitment functions can be cheaper than maintaining an in-house hiring team. The cost of a senior recruiter can range anywhere from €30K-€75K per year, excluding benefits, equipment, training, and other administrative costs. With RPO, you can have a team of 2-3 recruiters working for you at the same price, depending on your hiring needs.
- You can get started instantly – building an in-house recruitment team can take a few months, but with RPO, you can kick off recruitment projects within one working day.
- Access to skilled recruiters right away.
- Flexibility – you can scale RPO up or down based on your company’s hiring needs.
- Access to technology – embedded recruitment service providers like TalentHub use advanced recruitment tech, including applicant tracking systems (ATS), candidate assessment tools, and more.
- Employer branding and candidate experience – embedded recruiters dig deep into your company culture and bring your employer brand to life which will have a long-lasting impact on your ability to attract and retain top talent.
- Market knowledge – you gain insights into the industry landscape, including market size, salaries, and trends.
Disadvantages:
-
Not being able to choose the recruiters you collaborate with. RPO service providers usually comprise a team for you.
Some RPO contracts can be inflexible, with a minimum commitment of at least 3 months.
- Roles that require headhunting typically need specialized skills and additional time, and they may also incur extra retainer fees on top of the usual RPO costs.
Commitment level from recruiter: High
When should you consider this pricing method?
- When you don’t have an in-house recruiter
- When you have many open roles with a lot of inbound candidates
- When you’d like to build up your recruitment operations from zero
- When your company is growing fast
- When you’re looking for a long-term recruitment partner
- When your hiring needs are temporary or seasonal
Which pricing method does TalentHub use and why?
At TalentHub, we use hourly-billed, installment pricing methods, and RPO. For us, partnership is power. Our priority is to be your in-house recruitment partner, which means commitment from both sides is needed for successful collaboration.
Takeaways
We hope you now understand the importance of choosing the right recruitment partner for your company, based on pricing models.
The question you have to ask yourself is:
Do I want a committed recruitment partner that acts as part of my team?
Or do I want a service that focuses on finding candidates as quickly as possible, even if that means sacrificing quality?
The decision is up to you.
In case you need help with figuring out your options, we’re here to help.