Contingency vs retained search
There are two primary payment models used by recruitment agencies to make money in Australia. These are contingency and retained search.
How contingency recruitment agencies make money in Australia
Agencies that work on a contingency basis essentially just make introductions and sell CVs. They typically provide a short-term replacement guarantee of 3 months, as they have not done an in-depth assessment of the vacancy or the candidate.
Contingency agencies operate in a transactional manner - they are motivated to get someone into the role as soon as possible to land the sale. This push to fill roles quickly rarely results in the best or most qualified candidates.
As these agencies are not guaranteed to receive payment for the roles they working on, they will be reluctant to invest significant time or resources into sourcing candidates. Plus, taking the time to conduct an in-depth assessment may cost them the job, as another agency could beat them to placement.
Consultants at contingency agencies will typically be working on 10-20 vacancies at any given time, with a filling ratio of just 20%. They will not usually participate in any interviews for these roles and will be unwilling to share any negative observations. This is due to a conflict of interest - the consultant won't want to say anything that discounts the candidate, as this will result in the agency not being paid.
In essence, contingency agencies use a sourcing model, rather than a true recruitment model.
How retained search recruitment agencies make money in Australia
The retained search model supports the process of finding the best possible candidate, as it requires a more personalised and consultative process.
Under the retained model, the agency is paid over the course of the engagement, regardless of whether the search ends in a placement or not.
The employer pays the agency to establish a holistic picture of the vacancy, which includes assessing the organisation and its key stakeholders, short and long-term objectives of the role, skills required, and the psychological and behavioural profile of the vacancy.
The consultant will then develop a talent and market mapping strategy, plus an advertising strategy to find, engage with, and assess the most qualified candidates.
Retained agencies typically offer a longer replacement guarantee of 12+ months, as they are confident in their final recommendation. Additionally, consultants working on retained assignments will typically only be working on 2-3 vacancies at any given time, with a filling ration of more than 95%.
At 11 Recruitment, we only work under the retained model, and we offer an 18-month replacement guarantee. If you'd like to learn more about the differences between contingency and retained search, click the button below.
How else do recruitment agencies make money in Australia?
Recruitment agencies can also make money in Australia by providing temporary or contract staffing solutions to organisations.
In this case, the agency charges a markup on the hourly rate or salary paid to the temporary employee. The difference between the amount charged to the client and the amount paid to the temporary worker represents the agency's profit.
Recruitment agencies may offer additional services to both job seekers and employers. These services can include resume writing, interview coaching, background checks, psychometric assessments, and other talent acquisition-related services. These services are often charged separately and can contribute to the agency's overall revenue.
If you'd like to learn more about how recruitment agencies make money in Australia, check out Indeed's article on the topic. Additionally, you can click the button below for more information regarding how recruitment agencies work.