The Truth About Retained Search vs. Contingency Search
Contingency search has been around for many years and used to be an effective business model. That’s why the majority of recruiting firms and recruiters learned to work this way. Two forces have made contingency recruiting firms far less viable than in the past:
- The internet, social media, and job boards have made it easier for companies to fill positions on their own.
- A large influx of recruiters and recruiting firms has increased competition and encouraged companies to work with multiple firms on the same searches.
It’s now common for contingency search firms to only fill 10-20% of their job orders. This means that they fail and lose money 80-90% of the time which leads to the following pattern (“The Contingency Dilemma”):
- The high failure rate of contingency recruiting causes firms to compensate by taking in as many jobs orders as they can to “play the numbers game”.
- A large number of low-quality jobs with clients who see recruiting firms as a commodity causes overwhelm and lack of ability to do focused quality work. This causes a higher failure rate.
- The high failure rate leads to the attempt to compensate by bringing in more job orders. And so the cycle continues.
What can be done to solve this problem?
Once you’re caught in this loop, it’s hard to get out. Trying harder, hiring more staff, and other efforts are rarely effective. Does any of this sound familiar?
Retained Search is the Solution to Contingency Search
The good news is that there’s a practical solution: To move from contingency search to retained search. This entails working with clients on a mutually committed basis. A retained search agreement means you receive money upfront (a retainer or “engagement fee”) along with an exclusive. In exchange, you commit to executing a thorough, commited search on your client’s behalf. This method of retained search is also known as engaged search or contained search.
Retained search benefits recruiting firms in the following ways:
- The recruiting firm’s search costs are covered (and hopefully a profit as well). This allows them to make a far greater investment of time, money and resources on behalf of their client and greatly increases the odds of a successful placement.
- The client is partnering (has “skin in the game”) with you. This changes the relationship to one of joint success and collaboration and prevents much of the conflict and distrust that can otherwise occur.
- The recruiting firm is viewed as a “trusted advisor” whose advice and suggestions are more likely to be accepted and acted upon. This increases the odds of a successful hiring and placement.
- The recruiting firm no longer takes a financial loss if the client chooses not to hire, promotes from within, or hires an internal referral.
Client companies benefit from the mutually committed retained searches as follows:
- The recruiting firm is committed rather than just involved in helping them fill their hiring needs. Lack of commitment is a common complaint that companies have with contingency firms
- Retained search agreement – companies receive expert advice about the job market, candidate perspectives, and how to gain a competitive edge in hiring. Many companies want and need trusted advisor expert advice for hiring.
Contingency Search vs. Retained Search – The Differences Between Contingency V.S. Retained Recruitment
Two ways The Retained Recruiter helps recruiting firms break away from “The Contingency Dilemma” to build a retained search oriented business:
Some Recruiting Industry History
Until the early 2000s recruiting firms had only two business models to get paid by their clients: Traditional Retained Search and Contingency Search. There was an enormous difference between retained recruiter vs contingency recruiter.
Traditional Retained Search (TRS)
Traditional retained search (TRS) is predominantly used by large companies when hiring high-level executives. The fees are usually over $100,000 per placement and the search firms are guaranteed to receive ⅔ of the fee whether they fill the position or not; receiving the final ⅓ upon placement.
- The benefits of TRS are that both parties are committed to a successful outcome and the search firm never takes a loss. They're pretty much guaranteed to make a profit.
- The disadvantage of TRS is that the client bears all of the financial risks regardless of the results. This disadvantage is why TRS is not a viable option for the majority of recruiting firms.
Contingency Search (CS)
Contingency Search (CS) takes an approach that’s the opposite of TRS. Since the search firm assumes 100% of the financial risk they’re pushed to focus on quick submittals on a large number of searches to “play the numbers game”. CS causes both parties to be disadvantaged in the following ways:
- The recruiting firm frequently takes a loss in the process of serving its client and is treated like a commodity rather than a trusted advisor.
- The client doesn’t get the benefits of partnering with a committed search partner and trusted advisor which would serve them far better.
Engaged Search - The above negatives led to the development of a third option that combines the best of TRS and CS without the disadvantages of either. That is what we mean when we refer to “retained search”.
This "retained model" is sometimes referred to as “Engaged Search” since the client is engaging the recruiting firm with upfront money and an exclusive. In this case, the retainer is referred to as an “engagement fee”.
Contained Search - Other times the same model is called “Contained Search” since it combines the best of contingency and retained without the disadvantages. In this case, the retainer is referred to as a “container” or “container search”.