For a nonprofit to succeed and achieve its mission, it will need a strong leader with the skill, passion, forethought, and purpose needed to captain the ship. Cause Leadership works to help nonprofits and charities find these qualified executives.
In this article, we will explore two key fee structures used by recruiting agencies to help the reader determine which type works better for your nonprofit as you look for the right leader.
Retainer vs Contingency Fee Models Explained
There are two common types of fee structures recruiting agencies use to structure their agreements with a client. They will either charge a contingency fee or a retainer-based fee. Both can be based on a percentage of the candidate’s negotiated compensation, or a recruitment firm may offer a flat-fee price.
Let us take a deeper look at how retainer and contingency fee structures work and their pros and cons.
The Retainer Fee Model
With a retainer placement, the company pays an upfront retainer fee so the agency can begin its search. Typically, they will pay at different intervals during the search process. For instance, if the recruiting firm charges a 30% fee based on the hire’s first-year salary, the client will pay 1/3 to retain their services, then 1/3 when they provide their list of recommended candidates, and then the remaining 1/3 when the person is hired.
Pro: The recruitment firm is exclusively engaged by the hiring organization, offering one voice to candidates in the marketplace.
Pro: Executive and senior leaders often appreciate the exclusivity of the firm’s engagement with the hiring organization.
Pro: The recruiting firm can provide focused service to the hiring organization.
Con: The hiring organization assumes some upfront financial risk.
Con: The hiring organization may pay a higher fee, maybe 25-30%+ of compensation, but ideally receives a more exclusive and fully managed search service.
The Contingency Fee Model
With contingency placements, the company pays the recruitment agency only once they have successfully found a worthy candidate and the organization hires them. Then, the fee will be a percentage of their first-year earnings – typically 20% to 30%.
Pro: The hiring organization does not have to pay upfront, but only for a successful hire.
Con: If the hiring organization is unwilling to take a risk and pay a retainer, how willing do they expect the recruitment firm to be when it comes to the search. Does the quality of the new hire become an issue?
Con: The recruiting firm may not be exclusively engaged by the client. There may be multiple firms searching to fill the same position. This means multiple voices are telling the organization’s story and not precisely the same way.
Flat-Fee or Fixed Fee
Some recruiting firms may be willing to offer a flat or fixed fee model to the hiring organization. The fee is estimated on a candidate’s potential compensation, and the hiring organization and recruitment firm agree on that fee. Then if it is necessary to negotiate a higher compensation package with a candidate the firm does not charge any additional fee to the hiring organization.
How to Choose the Right Fee Structure for Your Nonprofit
Not sure what fee structure is right for your organization? We can help you decide so you can focus on finding the best leader to help you succeed and change the world for the better. Contact us today for a consultation.