President’s Message – Q2/2018
Transparency in the Recruitment Industry
Perhaps the most common complaint we hear about the recruitment industry relates to money. A client wants assurance they are paying a fair market rate for a contractor and not being overcharged because a recruitment firm’s mark-up is too high. A contractor wants assurance they are earning a fair market rate and not being underpaid because a recruitment firm’s mark-up is too high. The best way to address these concerns is to be transparent and disclose recruitment agency mark-ups to both stakeholder groups.
Why do some recruitment firms resist disclosing their mark-up on a contractor’s hourly rate? Have you ever asked your recruiter what the mark-up is on your personal rate and, consequently, what the client is being billed for your services? Did you get an answer?
The truth is that most firms don’t want you to know what their mark-up is. This is because in many cases, mark-ups are high – sometimes obnoxiously high. Annex receives regular complaints from consultants working through recruitment agencies who find out what mark-up is being added to their hourly rate. We often hear examples of 100% mark-ups and higher. The difference in mark-ups charged by various recruitment firms can be substantial.
How does the mark-up being charged by a recruitment firm impact you, the consultant? Let’s suppose you are a Business Analyst billing $75 per hour.
The client pays the consultant’s rate plus the agency mark-up. Your $75 per hour personal rate may be charged out at $85-125 per hour depending on the recruitment firm you work with. If the rate is too high you may lose out on a contract because your submission to the client is less competitive compared to candidates from other recruitment firms.
Let’s look at the same situation from the client’s perspective. Suppose a client’s maximum budget for a Senior BA is $90 per hour. If your recruiter refuses to accept a mark-up of $15 per hour or less, then you will not be submitted for this role, even if you are a perfect fit. This may cost you a lucrative contract because the recruitment firm wants a high mark-up. As Wayne Gretzky said, “You miss 100% of the shots you don’t take.”
If the recruitment company in Scenario #2 decides to submit you, they may negotiate your rate lower in order to maximize their mark-up. With a $90 per hour bill rate ceiling, some recruitment agencies may offer the consultant only $50 per hour while others may pay $75 per hour. The $25 per hour difference translates to $25,000 extra in the consultant’s pocket for a 6-month contract, and $50,000 extra for a 1-year contract.
These three scenarios show why it is important for both the client and consultant to understand what mark-up is being charged on a contractor.
“Honesty is the best policy” –Benjamin Franklin
Annex has had a transparency policy for the last 10+ years and it is a differentiator for the company. We disclose our mark-ups to both clients and contractors. Money is the most sensitive issue during contract negotiation, so why not be open and honest about it right from the start? There is nothing to hide if mark-ups are fair. One of Annex’s core values is “Do the right things”. This means acting with integrity, being transparent and leading by example. Reputation takes years to build but seconds to destroy. We are proud of the reputation we have built.
There is nothing wrong with making money. After all, Annex is a business, not a charity. We have ongoing expenses including salaries, employee benefits, rent, multiple types of insurance, accounting, legal, recruitment software and tools, etc. However, if we grossly overcharge for an individual contractor, eventually the client and consultant will find out and that will end the relationship with both parties. No deal is worth two relationships, no matter how high the mark-up. This supports Annex’s “Lifetime relationships” core value. I regularly tell our team that we are in the relationships business, not the IT business.
I don’t want price to be an Annex differentiator. We prefer instead to differentiate ourselves based on quality and service. After all, we have a 97% customer satisfaction rating across 5,000 completed projects since 1998, and 99% customer satisfaction for contract work, perhaps the highest rating of its kind for IT professional services in Canada. However, price is always a key constraint of any project so it is important to understand how you, the consultant, are being positioned and what recruitment firm gives you the best chance to win a contract role. If you are unsure whether you are being treated fairly or represented in the best possible way, give us a call.
Relationships are built on a foundation of trust. Transparency, such as disclosure of mark-ups, helps to build trust which is important because people do business with people they like. That has not changed in the 20 years Annex has been in business.
As Peter Drucker famously said, “Culture eats strategy for breakfast”. Stacey has worked for two decades to build a culture at Annex that is based on integrity and teamwork. This is a differentiator for Annex in the recruitment industry.