6 ways to reduce the hidden costs of using recruitment agencies

6 ways to reduce the hidden costs of using recruitment agencies

Let’s be clear right from the outset, this is not about avoiding recruitment agencies all together.

Staffing agencies have grown in numbers and specialities over the past couple of years in response to an ever diverse and specialist job market. This makes finding the right people for roles difficult to hire, and the agencies that are winning are inch wide and mile deep. What’s more 90% of agencies in the UK employ less than 10 people and it’s not the agency you engage with, but the consultant you work with that drives true success. Finding them is not easy, finding the right one is even harder.

Secondly, reducing agency fees to as low as you can get them is the easy way to have them take their time finding you inferior candidates. It’s short term and will result in a low quality of hire. Instead they would focus their attention on clients who pay fairly for their service. Below I will outline 6 hidden costs and how you can avoid them.

Hidden Cost #1

High overhead of setting up and continuously managing a preferred supplier list.

Repeatable, mundane work like this can be easily automated, freeing up time for you to do more direct sourcing! For most organisations, the PSL consists of an excel spreadsheet complete with the agencies name, specialities, candidates sent, total cost to date, % fee agreed, SLA’s and terms attached, time-to-hire, candidate quality of hire and several other pieces of information to keep track of their performance.

It’s costing you time and money managing so many moving parts, and just like the annual appraisal, that information gets stale, resulting in a mammoth project to review it on an annual basis. If you’re sending this PSL spreadsheet amongst your colleagues and collaborating on it together, somewhere in the process you’re liable to having out of date and inaccurate information, particularly if hiring managers are getting involved. That erroneous data means you could making the wrong decisions on which agencies to work with in the future.

How can you avoid all this? Get this information out of the spreadsheet and into a vendor management system / recruitment marketplace [link] that allows you manage consultant and agency portfolios. Then hook it up with your other HR/Recruiting systems to ensure that with the joined-up approach your able to understand the source of hire to job performance data regardless of the source being from job boards, agencies, direct sourcing etc.


Hidden Cost #2

Candidate poaching from non-compliant agencies causing higher staff turnover

If you’re not working with them, you’re working against them. Strict preferred supplier lists with tight contractual agreements may limit the costs but it certainly does not eliminate it.

Unfortunately for our industry there are a lot of unethical recruiters who have been trained in the old school cow boy practices of soliciting business from your competitors. But to combat that, there are also some great recruiters out there who are not afraid to utilise their deep relationships. Regardless of whether they are good or not, the fact of the matter is consultants will target candidates from the companies who do not pay their fees. Irrespective of the contractual agreements in place, they won’t bite the hand of those who feed them. If they feel it’s more lucrative to target your employees to fill your competitors placements they will, so the cost is not engaging with them properly and ultimately the time and cost to you replacing your staff. Being cheap can be very expensive.

How you can avoid all this? Retain the agencies/consultants performing well and have genuine knowledge and deep relationships in their specialist sector. Candidates will reject working with the bad recruiters so you need not worry too much about them. The good ones, however are your biggest threat if not engaged properly and the challenge is separating the wheat from the chaff. Ensure that how you manage and assess your recruiters is devoid of any loop holes so that you can know you’re working with the right one. And then keep up with the market rate when you’re paying them for their work.


Hidden Cost #3

Agency underperformance across your job roles.

Managing agencies can be a complete time suck, however if you’re not giving regular feedback and tracking their performance then they are unlikely to perform very well. Poor briefing could also cause them to be sending you candidate shortlists which just do not fit your requirements.

How to avoid all this? Ensure that you and the hiring manager are in sync with what the requirements of the role are. Constantly ask them for feedback and really question the requirements of the role before briefing an agency. The more you know about the role, the better your feedback to the recruiters. Make feedback easy by giving succinct and structured responses; strengths, weaknesses and improvement expectations. And set SLA’s to gather performance metrics so that agencies can be assessed objectively against delivery. Lastly counter any favoured status that particular agencies may have with the hiring manager using the performance information, not relationships.


Hidden Cost #4

Hiring managers going rogue and hiring from non-compliant agencies

Did you know, 63% of employers report that hiring managers tend to end up hiring candidates from agencies who are not on the PSL. Even more damning is that, 64% of employers will purposefully reject suitable candidates purely because the agency they came through is not on the PSL. There’s a mismatch here, whereby the hiring manager feels confined and constricted by a PSL, so they go outside it, and get a suitable candidate for their role. But then find that HR/Procurement says you can’t hire them because the cost is too high and negotiation takes too long, that the candidate ends up going elsewhere.

How to avoid all this? Setup a standard and efficient process for engaging agencies not on the PSL. Oblige compliance with standard terms to reduce time to setup contract, reduction in fee rates and standard rebate arrangements. This consolidates the terms you have with your PSL into essentially one contract, removing procurement headaches and a thanks from your CFO.

Hidden Cost #5

The PSL does not cover all the roles you need to fill

If you’re ever in the scenario where you need to hire [insert specialist role] in Japan and you and your business is based in the UK. You’ve never hired in Japan and these roles are already difficult to hire, it’s unlikely your PSL has come across the requirements themselves. You end up spending a lot of time calling all the agencies you can find, pre-screening, probably using a translator to communicate your requirements. Might take you a week, maybe a month. Spending the time doing this is taking away time you could be using to do some more strategic talent acquisition initiatives.

How you avoid all this? Have access to a broader marketplace of pre-screened agencies that can be engaged with quickly and effectively within the your terms of the PSL.


Hidden Cost #6

Agency fees being charged high than the market norm

This occurs so easily when A, you review your PSL only once per year. The job market changes, so agency fees changes pretty quickly and throughout the year you probably could have paid a lot less for that awesome candidate 6 months ago. B, when your visibility of the market is limited because your probably working with ‘recruiters’ rather than ‘consultants’ [link].

Actively benchmark your agency fees against the fees they set for similar organisations and similar roles. A recruitment agency marketplace [link] intuitively will be able to tell you what the market rate is currently for your job requirement before you even engage with an agency. Secondly you can monitor and research what others are paying by joining some in-house communities [link] where your peers are able to share with you how they are working with agencies in certain locations or job specialities.

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