DataScope MD Julien Hofer discusses the financial benefits
I enjoyed – and agreed with – the thoughtful piece by Ian Goodall earlier this month on why agencies will survive the rise of social media.
I’d like to address the wider question of why it makes sense to use a recruitment agency from a financial point of view.
As Ian says, it’s tempting to think that by bringing recruitment in-house you’ll save money. In today’s cash-strapped world isn’t it sensible to avoid paying agency fees and do the job oneself?
Actually, no. Companies who choose the in-house route often end up paying out more.
First and foremost, an agency can save you time when you need it most, and that time is most definitely money. Most hires are made because the company will benefit financially by bringing the new person in. The sooner they make that hire, the earlier they get that benefit.
On average, a professional will boost revenue by the amount of his or her salary plus twice as much again. So, every month of employment is worth two months of the salary paid in gross profits.
That’s a bit more than 15 per cent of the annual salary. Now recruitment fees for a sole agency assignment are, typically, 15 per cent as well. So you can see now that if, by using a specialist agency, you are able to bring forward the start date by just one month, you will have covered your agency fees.
That’s not to mention all the other benefits of using an agency - saving a huge amount of time, widening the net considerably, and the most important benefit of all, having the support and expertise of independent people with unparalleled knowledge of the market and long-term relationships with both client and candidate.
Second, an agency helps you stay in control with salary negotiations. In-house recruitment tends to rely quite heavily on headhunting and/or social media.
But in both these avenues, you are approaching the candidate rather than the other way round, and that means he or she has the upper hand with regard to salary.
You are likely to have to pay more to entice him or her to jump ship. This has a knock on effect on your salary structure and employment costs for existing staff. Your development costs gradually rise.
There have been a number of cases of studios going from being able to pay below average (because staff motivation and retention was high) to paying above average for everybody. In some cases staff were made redundant because costs became unsustainable.
So agencies don’t just offer the knowledge, expertise and relationships which make for excellent hiring recommendations.They can save you money in the most direct ways, too.
Re: Costs: There are a few companies out there who boast of making a huge % of direct hires (thus avoiding recruitment fees) - But this isn't "free". We never hear them explain how much that has cost them to set up and run their internal recruitment. I';d be surprised if some companies have evven done this yet...Salaries and benefits for HR staff, Internal Recruiters, Advertising, Social Media, Job Boards, Internal referral fees for their own staff,Marketing, recruitment software and the support required to learn it and run it. This all addds up £250K+ in some cases? More than the budget of some small games out there!...Smaller studios just don't have the capital to invest £100K/£200K a year into internal recruitment. Yes, there's a place for it - but count the real costs - then decide!
Ian, a smaller company wouldn't need to invest 100-200K in internal recruitment.
A company that only needed to hire 10-15 people a year could achieve that by spending as little as 40K on internal recruitment. Then, the more the business grows, the cheaper per capita inhouse recruitment becomes.
Obviously, a lot depends on how hard to reach the various target candidate audiences are - but even that is a relatively short term problem.
I also think you'll find that the larger companies that do spend in excess of 250K on their inhouse recruitment functions were previously spending at least twice as much using agencies. Plus the candidate quality improves when a company hires direct. That has to be factored in too.
Julien, firstly a large part of your argument relies on the premise that an external recruiter will worker faster than an internal one and therefore will save the company money. But you don't seem to explain how or why an external agent would be faster?
Secondly, I think it is rather simplistic to think that a company doing it for themselves and relying on headhunting and social media will necessarily have to pay over the odds in regards to salary. Attracting talent is far more complicated than that whether it's done in-house or by third party.
First and foremost, wherever the costs lie, let us not lose sight of the essence of of the biz in hand: to find the right person for the job. That is the imperative, saving money is important of course, but it is a secondary consideration. Personally, I have always found it best to stick to my last, so thought I might well have a go unblocking a clogged drain, when I want a new bathroom I call a plumber!
So far as using an agency is concerned, I am persuaded by Julien's argument about working 'the right way round.' Of course there are those veryu few rarefied top people where head-hunting might well be appropriate: most staff we recruit are lower down the scale, and frankly I want candidates who are looking to move... They are keener, and likely to be cheaper, and these are the candidates that agencies can put in front of us.
Everyone wants to save money, though sometimes it is not a company decision at all, but individuals who want to look good at the departmental meetings! The bigger picture is often that saving money in one area loses more of it in another. Juilien says that agencies can get the right people in the right jobs faster than can be done using an internal process... The answer is simple: ask the agency! Get their data on recruitment speed, and if they have been beating whatever you have been doing internally, then use them. If not, don't.
One more thing, even if internal recruiting looks good, we need to keep in mind that somewhere in every process a bit of objectivity is a Good Thing: A well-run team can sometimes become a bit too cosy when recruitment is done internally, and there are many stories of candidates the team don't like being 'spiked'. As I say, an agency can inject some objectivity into the process so that the right person gets a fair chance.
I'm not sure of the premise that agency use equals objectivity. Agents are often under pressure to achieve short term sales targets and are rated on how much money they make not how long the candidate stays in the job or what effect they've made to the client's bottom line. Of course the really good agents know how to do all of this and they tend to be the ones that remain successful in the industry for considerable lengths of time. But others are less effective and respond to commercial pressures more than a desire to be an objective partner to their clients.
A couple of good questions Robert. The first one - why will an external recruiter work faster than an internal one?
The answer is down to the volume, accuracy and integrity of their data. A specialist agency has a team of people spending each and every day collecting current data of who is available and how good they are. Their data will go back many years. The team of external consultants will be experts in their fields.
Also, when a role comes in it is very likely that they will already be working on several similar vacancies. So they will already know who is looking to move and who isn’t. They will be able quickly to present a distillation of a huge amount of time, effort and campaign results. However, an internal recruiter will, unfortunately, be starting from scratch and also have a much smaller pool of relationships upon which to draw.
There are, of course, exceptions. A developer who recruits, say, 100 plus per year may well also have a large team in place and good data upon which to draw. This is particularly true for companies whose websites have a large following (eg a popular online games company). But most companies are not in that position or wish to make the enormous financial investment which is necessary.
Your 2nd posting relates to objectivity which I did not discuss in the article. It is important that internal researchers, who source candidates, do not also decide which agencies to use and which candidates to reject. If internal recruiters both source candidates and shortlist, then they have a vested interest in recommending their own candidates. A good balance is achieved when agencies are actively encouraged to submit candidates and when the shortlisting decisions are independent of all sourcing of candidates.
