Warning: Contingency Search Endangers Your Success

Billy Bosworth owned Bosworth Search. He and two of his best recruiters had been working on a VP of Supply Chain position for the past three months. It was with a client he’d worked with for the past five years. This search was on contingency with two competitors involved.

His recruiting team invested over 80 hours sourcing, recruiting, screening, and submitting quality candidates. He invested well over 10 hours himself. The specs changed twice during the search. They submitted a total of 5 candidates. One of these had already been submitted by a competitor a few hours before their submission. The client interviewed three of their candidates, and they received “glowing feedback” on two of them.

On Monday, Bob, the CEO said with an appreciative chuckle, “Billy, it’s down to your two candidates, and I wish we could hire both of them. I’m meeting with my leadership team at lunch today to decide which one it is. I should get back to you by the end of business today or tomorrow morning at the latest”.   Billy got off the phone and basked in the warm, satisfying feeling that accompanies a long, hard, and successful effort. He looked forward to receiving a fee of around $45,000. He knew that if he added up the total time, effort, and out-of-pocket costs for recruiter salaries, recruiting tools, and overhead they were already out over $10,000 for this search! 

Billy didn’t hear back from Bob when he stopped working Monday evening. He thought to himself, “no worries, Bob will call me tomorrow morning.” By noon on Tuesday, he still hadn’t heard anything. “OK, this happens; I know he loves our candidates. We’ll get an offer soon,” he said to himself.

Billy sent Bob an email at 4:55 PM on Tuesday. When he checked his email Wednesday morning, Bob hadn’t replied. He called Bob’s phone and left a friendly message to “get an update.”

Billy emailed Bob Thursday morning and called Thursday afternoon…..”Hey Bob, the candidates keep calling us to find out what’s happening on the position. Would you please let me know so that we can update them?” When Billy stopped working Friday afternoon, he was pissed at Bob’s lack of consideration. He vowed to stop thinking about it over the weekend, but the situation crept into his awareness from time to time anyway.

After another phone message and email on Monday, Bob finally called on Tuesday afternoon!  “Hey Billy, sorry I didn’t get back to you last week. We had a lot going on. We received a candidate from another recruiter who was perfect for the position last Monday, and we ended up hiring him. As usual, you guys did a great job on the search. We’ll definitely give you another shot on our next opening”  Billy wanted to explode and rip into Bob for how he handled things but wisely restrained himself and ended the call.

He put his head in his hands and made loud guttural sounds mixed in with an assortment of short sentences peppered with four-letter words beginning with S and F. His conversations with the two recruiters who worked on the search added more frustration and anger for everyone involved. They complained about how much they hated this situation but agreed that it’s “just part of the business.”

Billy was stuck in “Contingency Hell” and didn’t know how to get out. But, he was committed to finding a better option. His first attempt to create better results was to hire another salesperson to bring in more job orders. He figured that even with low fill ratios, the more jobs brought in, the more jobs filled.

Indeed the new salesperson brought in more jobs, and the recruiters became increasingly overwhelmed. He then added more recruiting staff, which increased his costs and the time and effort to train and manage.  Fill ratios decreased, which caused the team’s frustration and negativity to increase. Growing in this manner caused Bosworth Search’s profits to sink even further. At times, Billy had trouble meeting payroll due to unstable revenue.

Billy’s next attempt to get out of Contingency Hell was via process and technology improvements. They improved their processes for job prioritization, time management, and general productivity. Bosworth Search’s technology improvements included a conversion to a better ATS and improved sourcing tools. These efforts led to moderate improvements in fill ratios, revenue, and profitability.

However, after two years of commitment to process and technology upgrade efforts, their fill ratios would not move above 25%: They still lost money on 3 out of 4 searches. Frustration levels remained high. The incomes of Billy and his people were not commensurate with competency and effort. Does Billy’s situation sound familiar to you?

Their breakthrough came when Billy was referred to a recruiting industry advisor who helped him understand that the root problem was Bosworth Search’s business model for engaging clients. He explained that when competent and committed recruiting firms don’t fill searches, it’s almost always due to either client issues or dysfunction inherent in contingency searches. The advisor discussed contingency search vs retained search in detail.   

Billy reflected on his many painful “lost searches.” He thought to himself, “How many times has the client decided not to hire, filled the position internally, or promoted someone? How often did we lose to competitors because they got an earlier start or submitted our candidate before we did?

Billy continued his reflection:  “If we were the only recruiting firm on the search, we’d significantly improve our fill ratios. Also, if our search costs were covered upfront with a retainer (AKA engagement fee), the client could still decide not to hire, promote someone, or fill internally, and we wouldn’t lose money. Why should we lose money by working on our client’s behalf?  

Billy’s review of his contingency search career gave him the perspective needed to objectively consider the plusses and minuses of contingency vs retained recruitment, This gave Billy the conviction he needed to move from contingency search to retained search.. His advisor taught him a  simple, repeatable process to move from contingency to a container model (a cross between contingency and retained). In this model, the client pays an upfront retainer / engagement fee, with the remainder paid upon placement.

Bosworth Search now had “exclusives,” and the clients had “skin in the game.”  This provided them with the following benefits:

• Fill ratios went from 25% to 75%
• Fewer higher quality searches reduced team overwhelm
• Clients were more open to advice related to job spec and hiring process issues
• They didn’t lose money on searches anymore
• The firm’s morale, revenue, and profitability increased
• They received far higher trust and respect from their clients

As an advisor to recruitment firm owners and leaders, I don’t know any highly successful small firms in the direct-hire space with a contingency-based business. This is an area of recruiter training with a high ROI.  The recruiting firms that are doing exceptionally well and enjoying what they do work on a retainer/container basis.

The question is, how do you want to run your recruiting business going forward?