Intra – Office Referrals: A Radical Proposal For Recruiting Firms
By Steve Finkel
What financial arrangements do you have for “fee splits” within your office? If the total fee is $10,000, and consultant A obtains the Search and consultant B obtains the Candidate, how is credit for that $10,000 fee divided?
50 – 50, right? Five grand credit each, at whatever commission structure you might have? That’s the way (virtually) everyone does it! But here are two intriguing questions for you. Why? And if you changed it, what would happen?
The answer to the question of “Why?” is obvious; “we’ve always done it that way.” What does “always” mean? It means always – and that means since the days of APF (Applicant Paid Fee)! Surprisingly, there are today many in our business who do not realize that while our business has certainly evolved, we come from a historical background of APF. Until the early 1950’s one hundred percent of our industry was APF. And as recently as the late ’60’s, the majority of our industry conducted business in this manner. What has this got to do with you? It is the reason you have always been taught that a 50 – 50 fee split is correct!
Consider the fairness of that structure in an APF environment. The company does the hiring; the applicant pays the fee. Their worth to the consultant is equal. In that market, 50 – 50 split makes a lot of sense.
But times change. Today there is, practically speaking, no APF business. Why? Well, decades of good salesmen selling EPF (Employer Paid Fee) to corporate hiring authorities have had profound consequences. Then too, the rise of Recruiting as a source of higher-quality candidates than obtained through newspaper ads has resulted in a superior product to sell. The sale has been made. It is an EPF business.
And how do we split our fees today, if consultant A has the candidate and consultant B has the client? 50 – 50, the same way we’ve always done it!
Let’s take a look at an option, a different way of dividing credit for the fee (at the usual commission rates), and see what the results might be.
It is generally agreed that when consultant A has the client and re-activates or is given a candidate from consultant B, then consultant A (who has the search assignment) should put the deal together. The loss of effectiveness in communication would be significant were it otherwise. Peter Drucker’s Information Theory, that “every additional relay doubles the noise and cuts the message in half”, absolutely applies in this instance.
Accordingly, the consultant who has the client should present the opportunity to the Candidate, present the Candidate to the Client, Follow-up, close, everything. The consultant who has the client does the work. All of it? No. Most of it? Yes.
It is only fair that the one who does the work gets the fee. All of it? No, because another consultant recruited the candidate. Most of it? Yes. How much? Try 75% to the consultant who puts the assignment together, 25% to whomever recruited the Candidate.
Why? Because it is fair.
The Best Results for the Client
The problem with the old “50 – 50” split is that it makes one candidate worth twice as much as another! If you submit a candidate of your own and another originally recruited by someone else, your candidate yields a full fee if hired; the other candidate yields only half a fee for you.
Under these circumstances, many consultants will try to subtly shift the emphasis to their own candidate. This does a disservice to the client, who should evaluate candidates free from bias on the part of the consultant. Yet if a fee will be $20,000 if candidate A is hired and only $10,000 to the consultant if candidate B is hired, the tendency is strong to attempt to influence the hiring decision.
But what if the consultant would get 75% of credit for the fee if candidate B were hired. Would he then risk the entire placement for 25%? Probably not.
The client thus receives what he should – an unbiased presentation and follow-up on all qualified candidates.
Increased Utilization of Candidate Inventory
What manager of an existing firm has not been frustrated by consultant reluctance to “work the files”? It is an often stated maxim that “there is more money in those files than you will earn in the next five years”. This is quite probably a true statement. Yet is the back inventory of candidates utilized to its fullest extent? Nope.
The purveyors of computer software products will claim that time-and-money-absorbing computerization of files will correct this. They are wrong. The problem lies not in paper vs. computer screens; the problem is that when a consultant places a candidate recruited by someone else, he is working at half price! And yet the same manager who would laugh at a client who offered half-a-fee expects a consultant to willingly accept it!
What’s the answer? 75% for the consultant who puts the deal together! Do you want your back files worked? Fine. But don’t expect a 50-50 split to accomplish it.
Increased Number of Clients
There is one thing that will protect a firm from market downturns, inconsistent production, and slumps better than all else – having lots of clients.
Yet a weak consultant who does not possess the skill or the tenacity to obtain or develop clients can get by financially in a strong market by only recruiting – if there is an old-style 50-50 split.
The problem with doing so is that a weak consultant will never develop clients on his own. He becomes a “feeder” of more competent people. But when the market slows, two things will happen. First, the manager will keep the inept “feeder” on board too long while emphasizing too late the need to develop clients. Sorry. The “feeder” consultant will eventually fail after going heavily into his draw and costing the firm money. Secondly, the clients that could have been developed had the consultant been economically forced to do so will have gone to other firms.
If the cost of candidates had been only 25%, the consultant could not have “got by” by doing less than half the job. He would have become a real consultant – and the firm would have enjoyed additional clients and revenues. Try it and see.
Correct Marketing Emphasis
Peter Drucker once wrote that “the purpose of business is to develop a customer”. Certainly there is no intent to commit the heresy of criticizing Dr. Drucker. (When a professional business consultant refers to “St. Peter”, he is referring to Peter Drucker). However, in our business, we might expand that statement a bit: The purpose of our business is to develop a repeat customer.
Read that sentence again. The strongest bulwark against difficult times and the best asset to maximize business in good times is a solid and continually expanding quantity of serious high-quality repeat client companies! We all recognize this. Yet, if you are a manager, remember the first rule of motivation – you must reward correct conduct.
If you’ve been having trouble motivating your people to expand and upgrade their client base, if your firm could use more serious repeat clients, then you should ask yourself a fundamental question: What kind of behavior have I been rewarding?
How do you get more and better clients? Pay your people for developing them by sending a clear signal! What kind of signal? How about 75% of the fee for obtaining the Search assignment and putting the deal together?
That is how you increase production – in good times or bad!
So let’s see what might happen within the office if a 75 % – 25% split for the candidate were instituted.
First, it would be fair. After all, the consultant who puts together the placement surely does at least 75% of the work. He should get 75% of the fee.
Secondly, it yields for the client an objective presentation of all candidates and increased quality of work by the consultant throughout the hiring process. Why? Because the consultant is dealing with candidates of roughly equivalent worth to him, rather than candidates at both half the commission (the “split’ candidate) and full commission ( his own recruit).
Thirdly, the entire office would utilize the back data base inventory of candidates far more. Because they are not being asked to work at half price when they do so!
Fourthly, the firm would see additional clients brought in those “feeder” consultants who only recruit for others. An appropriate split-fee arrangement means they would no longer be able to survive financially by doing so. Thus, they would have to go out and develop some clients – or get out of the way for more competent people.
Finally, a 75% – 25% split sends a clear signal to your staff that long term business success is achieved by accumulating many repeat customers. That you want your people out there marketing your firm and developing accounts. Putting together completed searches! And that you will pay them for doing so!
Once upon a time, a 50 –50 split was right for our industry. The applicant paid the fee! That was why he was worth 50% ! But do you still work an APF market? No. So why do we still have a 50 % split ? Because we’ve always done it that way!
Come on. We can do better. Try it and see.