In the retained executive search sector, most medium to large executive search firms will typically charge 30-33% of the candidate’s first year total cash compensation. They will leave the last payment (each payment is paid in 3 equal increments spread over 60 days) for an opportunity to invoice for an “up payment” if the candidate is hired over the compensation range agreed upon via the contract agreement.
For example, if the agreed upon compensation for a COO search contract was $260K annually, the search firm would receive $86,666. for the completed project (based on a 33% fee). However, if the search firm ended up hiring a candidate for $300K, the client would have to pay an additional $13, 333. to the search firm. This “up payment” (based on $300K at 33%) results in the project costing the client $100K total. Some large search firms also charge for administrative fees that can typically run about an additional $10,000. per project.
My firm does something compelling on pricing that has become a competitive advantage. We are a boutique firm that can offer flexibility on pricing. We charge 25% of the candidate’s first year total cash compensation. We also fix the fee at the beginning of the search project meaning that the fee will not change at the end of the search whether or not we hire someone at a higher rate. By comparison, our client would pay $65,000. for the same $300K annual compensation COO search in the example above (cost savings of at least $35K). We also charge zero for administrative fees.
Use pricing as a clear competitive advantage. Clients like to see certainty in the budget process and do whatever you can do to simplify, take out the fat and offer a solid cost reduction without sacrificing quality.
Remember that you can never make a bad deal with a good client.
