Fee Negotiation Part 1 – Flat Fee Request

Friday, February 8th, 2008 by admin.

By Prestige Group, Ltd.

This is part one of a series of articles on fee negotiations.  

There has been over the past few years, a trend for clients to request a flat fee agreement.  These flat fee requests have stayed at the same amount year after year. Plus, the majority of the flat fee requests are for substantially lower amounts than a percentage.  Here are some of the issues with a flat fee.  First, if you haven’t read the article “Why Recruiters Are Worth What They Charge”, a reprint from the Fordyce Letter by Paul Hawkinson in this blog site this month, read it. It will give you a foundation. 

Secondly, and more descriptive, is the following. 

Let’s say you have negotiated from a percent fee to a flat fee of $12,000.  Your legal department or boss won’t work with any recruiting firm unless they agree to this flat fee. Your company/ facility has been using this flat fee for a couple of years now.  I propose the following questions. Has your company/ facility, over the past two years, charged the same for their services?  Are all the employees at the same salary as two years ago?  Has the electric and water bill stayed the same for the past two years?  Have your insurance costs stayed the same?  I venture to guess every one of the items stated above have increased along with countless others that haven’t been mentioned.  We all know a dollar two years ago is worth less now. The fact is, it costs more now to do business then it did two years ago.  The flat $12,000 fee two years ago is now actually worth $739.91 less than two years ago*.  Basically that’s losing 3% of your money every year.

This article isn’t trying to be combative, just leading you to this fact. It doesn’t make since for any company to “freeze” their main source or only source of revenue as other costs increase every year.  A company cannot survive.  Tell your employee’s that for the next two to three years they won’t get any raises.  What type of work do you think you’ll get from your employees.…if they stay?  A percent fee agreement allows for inflation. 

Put yourself in a recruiting firm shoes for a moment.  You have a company that has a position to recruit on that pays $90,000 but has a flat $12,000 fee agreement.  You have another company that has the same position for the same money but is on a 25% fee agreement.  Which one would you put your efforts into?  You’ll put the most effort and present the best candidates’ on the position that will pay you $22,500; notice I included best candidates’ also.  You would want the best chance for a placement with the company that will pay you more, wouldn’t you?  Therefore they would see the best candidates. 

When recruiting firms go over their recruiting priorities, what companies get the best recruiters working on their openings?  What companies will actually have someone working on their situations every day?  I can assure you it isn’t the flat fee.  

Most recruiting firms that accept a flat fee agreement do so because they have someone in the area that they already have and they can spend little time on it.  They might even feel, since they’re working in an area for another company on a percent fee agreement, that if they happen to locate a candidate looking for a position, but isn’t a great candidate and wouldn’t send them to the percent company, you’d get it.  The flat fee company is getting the “B-” and “C” candidates or the “hand-me-down” candidates. This isn’t the type of candidate anyone wants.

All this to reinforce the old phrase “You get what you pay for”.    

Percentage fee agreements are the best way to go because they self adjust for inflation; they don’t have to be renegotiated because they self adjust.  You have confidence that the open position is a priority to the recruiting firm and they’re working on it.  Lastly, the candidates that are presented are good candidates and not after thoughts. 

*  U.S Department of Labor, Bureau of Labor Statistics web site – Inflation Calculator  Comparing 2005 vs. 2007  

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