I live in the New York City greater metropolitan area where recruiters are in no short supply. Many recruiters work in specific areas such as executive hiring, administrative hiring, or hiring for financial companies. There are a number of recruiters who specialize in tech recruiting. In my most recent job search I’m using a number of them now, but I’m wondering where the value lies for the company who is searching for a candidate.
Recruiters are paid in one of two ways, but the most common is on a commission basis just like real estate agents. Once a candidate is offered a position and accepts there is usually a honeymoon period (to make sure that the candidate stays), then the recruiter is paid their commission. The commission is huge, in the range of 25%-35% of the candidate’s first year salary at their new job.
Let’s take a look at the math here:
Consider Jasonium Software is looking for a new programmer. The salary range for the position is $90K-$110K. Jasonium’s current team lead makes $150K per year. Jasonium’s other programmer makes $100K. Jasonium software is going to use a tech recruiting firm to perform the candidate search. This means that Jasonium can expect to pay between $22.5K (20% of $90K) and $38.5K (35% of $110K) to fill this position.
Let’s say that Jasonium were going to perform the search without the help of a recruiter. The money that they would have spent on a recruiter is equivalent to the following amounts of Jasonium staff’s time.
| $22.5K | $38.5K | |
| Team Lead | 1.8 Months | 3.08 Months |
| Programmer | 2.7 Months | 4.62 Months |
So using a recruiter is supposedly worth the same as dedicating one person full time for more than 4 and a half months to finding Jasonium’s new programmer?
How does the recruiting industry justify these gargantuan markups? And why do companies continually pay them?
Recruiting services make little sense for a small company, but it does for a large company. It has to do with core competency. Many companies are poor with HR, and finding the right person vs. the wrong person makes a huge difference once a company has 100+ workers. In fact, the difficulty is so large that it makes sense to get an all-star and pay a one-time cost to a recruiter.
Also, in business, you’ve gotta charge the maximum amount your clients will tolerate. I’d imagine in this case, there will always be a big business willing to pay an extra $20K in return for that all-star coder with 7 years experience coding Google.com or something.
@cyman,
Wouldn’t finding the exact right person matter so much more for the small company than the large? A company with two people hiring a third is hiring 33% of their workforce. That candidate had better be the absolute right guy/gal. It also matters for a company of 100 to get the right guy/gal, but when the candidate is hired they will only make up 1% of the workforce. As long as they are halfway competent it would be hard for me to think that the one employee out of a hundred is going to make or break the company. It’s possible, but much less likely.
I agree, I don’t get the point of it. Especially since I’ve talked to recruiters that have no idea about web stuff (I’m in web design). I don’t understand the point of it all, or how it makes sense financially for anyone (including employees, who could be making far more, but are giving some of that up for the recruiting company). My brother just started doing IT recruiting, but I still don’t get it.
@jason – I agree that it’s super important that your 3rd employee is the absolute right person for the job, but can a small company divert 50% of its engineering team away from coding and building the company to properly recruit a highly skilled third teammate?