The Cost Factor: Retained Search vs. Contingency Search

Retained Search vs. Contingency Search

Introduction

In the world of executive search and recruitment, two primary models dominate the landscape: retained search and contingency search. Both models have their unique advantages and potential drawbacks, and the choice between the two often boils down to the specific needs and circumstances of the hiring organization. However, one factor that can significantly influence this decision is cost. In this blog post, we will delve into the financial implications of retained search versus contingency search, providing a comprehensive comparison to help you make an informed decision.

Understanding the Basics

Before we dive into the financial aspects, it’s crucial to understand what these two models entail.

Retained Search

Retained search firms are hired by organizations to fill a specific position and are paid a retainer fee upfront. They work exclusively on the job until it is filled, providing a dedicated, comprehensive search. This model is typically used for senior-level positions, where the stakes are high, and the right candidate can significantly impact the organization’s success.

Contingency Search

Contingency search firms, on the other hand, only get paid if they successfully fill the position. They often compete with other firms and the company’s internal recruitment efforts. This model is typically used for mid-level positions and below, where the urgency or impact of the hire may not justify the cost of a retained search.

The Financial Implications

Now that we understand the basics, let’s delve into the financial implications of these two models.

Retained Search: The Cost Breakdown

Retained search firms typically charge a fee that is a percentage of the successful candidate’s first-year compensation. This fee is usually around 30-35%. The fee is divided into thirds: one-third is paid upfront, another third is paid after a certain period (usually 30-60 days), and the final third is paid when the candidate is placed.

For example, if you’re hiring for a position with a $200,000 annual salary, a retained search could cost you around $60,000 to $70,000. This cost covers the dedicated time and resources the firm will invest in your search, including market research, candidate sourcing, interviewing, and negotiation.

Contingency Search: The Cost Breakdown

Search firms also typically charge a fee based on the successful candidate’s first-year compensation, often around 20-25%. However, this fee is only paid once the candidate is successfully placed and begins work.

Using the same example of a $200,000 annual salary, a contingency search could cost you around $40,000 to $50,000. This cost reflects the risk the firm takes by investing time and resources into your search without any guaranteed payment.

Comparing the Costs: Retained vs. Contingency

At first glance, it might seem like a cost-effective option. However, the true cost of a search isn’t just about the fee. It’s also about the value you get for your money and the potential costs of a bad hire or a prolonged search.

Value for Money

Executive search firms provide a dedicated, comprehensive service. They invest significant time and resources into understanding your organization and its needs, sourcing and vetting candidates, and ensuring a good fit. They also provide a guarantee period, during which they will conduct a new search at no additional cost if the placed candidate leaves or is terminated.

Executive search firms, due to their payment structure, may not be able to invest the same level of resources into your search. They may also be less likely to provide a guarantee period, or it may be shorter than that offered by retained search firms.

Cost of a Bad Hire

A bad hire can be costly, both financially and in terms of lost productivity and potential damage to your organization’s reputation. The U.S. Department of Labor estimates that a bad hire can cost up to 30% of the employee’s first-year earnings. For a $200,000 position, that’s a potential cost of $60,000.

Retained search firms, with their comprehensive vetting process and guarantee period, can significantly reduce the risk of a bad hire. While contingency firms also strive to place the right candidate, their resources and guarantees may not be as extensive.

Cost of a Prolonged Search

A prolonged search can also be costly. Every day a position remains unfilled, your organization loses potential productivity. If other employees have to pick up the slack, it can also lead to burnout and decreased morale.

Retained search firms, with their dedicated service, can often fill positions more quickly than contingency firms. However, this is not always the case, and the speed of a search can also depend on factors like the attractiveness of the position and the state of the job market.

Making the Right Choice for Your Organization

When comparing the financial implications of retained search versus contingency search, it’s essential to consider not just the fee, but also the value for money and the potential costs of a bad hire or a prolonged search. 

Retained search can be a worthwhile investment for senior-level positions, where the stakes are high, and the right candidate can significantly impact your organization’s success. It can also be a good choice if you need to fill a position quickly, or if you value a comprehensive, dedicated service and a longer guarantee period.

Contingency search can be a more cost-effective option for mid-level positions and below, where the urgency or impact of the hire may not justify the cost of a retained search. It can also be a good choice if you’re comfortable with a less comprehensive service and a shorter guarantee period, or if you want to keep your options open by working with multiple firms.

Conclusion 

In the end, the choice between retained search and contingency search is a strategic decision that should be based on your organization’s specific needs and circumstances. By understanding the financial implications of these two models, you can make a more informed decision that will help you attract and retain the right talent for your organization.

PS: Looking for exceptional leadership? With over 17 years of experience, Salmela Talent excels in finding leaders who align with your organization’s unique vision. Our distinctive approach focuses on your story, ensuring a perfect fit. Let’s co-author your success story. Book a call today!

Facebook
Twitter
WhatsApp
Email

Table of Contents

Newsletter

Sign up our newsletter to get update information, news, insight or promotions.
error: Content is protected !!

Ciera is a born-and-raised Duluthian who recently graduated from Point Park University in Pittsburgh. When she isn’t designing the Salmela website or sending emails, she doubles as an actress! With over 15 years of acting experience, Ciera brings her creative artistry and understanding of people to her work at Salmela.

Madison is a marketing maven with a mastery of magnificent messaging. She brightens every room with her positive attitude and joins Salmela to explore the digital corners on every search. If you’re having a first conversation with one of us, Madison is probably the reason why!

Ryan is an Emmy-award winning news producer with a strong history in the performing arts. Funny and outgoing, he’ll meet you with a journalist’s curiosity and actor’s joie de vivre.

Meghan brings her previous advertising agency experience to Salmela. She is a natural-born conversationalist and delights in every interaction with candidates and clients alike. Meghan can find something in common or a shared interest with just about anyone. (No really, it’s AMAZING.) She is also a foodie, loves cooking, and is always looking for the next opportunity to try an adventurous recipe.

Kate joins Salmela after a decade of non-profit arts leadership, where she shared her passion for building community, education, inclusiveness, and arts access. Her superpower is helping professionals identify their strengths and set them on a course for greater success. After work, she can be found reading Shakespeare, doing yoga, or prepping the next generation of theatre stars for college.

Cory spends his day advising senior leaders on talent acquisition strategy. He is happiest on his bike, skis, or helping his daughters rehearse lines. He began his career as a National Team Coach for the U.S. Ski Biathlon Team, followed by experience in pharma sales. In 2005, he founded Salmela. Today, Salmela places leaders across the healthcare industry. Salmela is the go-to vendor across marcomm disciplines in healthcare and beyond.

Chief Financial Officer, Olympian, and Health Coach, what can’t she do? When Kara is not managing the Salmela Financials, she spends her days educating and supporting people as a health coach. If that wasn’t cool enough, she also competed as an American biathlete at the 1998 and 2002 Winter Olympics.

Megan focuses on individual career wellness and team development for the healthcare advertising industry. As a natural networker, and with a career background in health/wellness and international corporate project management, Megan has the experience necessary to understand your needs. She enjoys being outside with her family, volunteering in the community, trail running and practicing yoga.

Recommend To A Friend

Click where to share

Facebook
Twitter
LinkedIn
WhatsApp
Telegram
Email