How Big Should Yours Be?

Such an important word in all lines of business. How do you make the largest possible margin, whilst at the same time offering value so that your customer is happy to buy?

But margin in recruitment is a bit more complicated. When you go to a restaurant on a Saturday night, and order a ribeye, you don’t ask for the wholesale price and negotiate the mark up. But in modern day recruitment, agency margins are almost always open, and they are under attack.

It’s strange to me that businesses complain about a lack of professionalism in recruiters, and simultaneously try to bring down margins. This creates the incentive to cut corners… But this is the Recruitment Clinic. For Recruiters. And whilst I’m happy to talk to anyone who may be reading this about how to get a better recruitment service (hint: pay more, demand more), I want to focus on my recruiting brethren.

So we’ll look at how you should defend your margin, and ideas that you may find useful when your client is asking for another discount.

Before we get into that though, it’s important to make sure that your mindset is in the right place. If you agree to drop your margin from 20% to 17%, what discount are you applying?

That’s right, calculator owners, it’s 15%. A 15% discount on your fee. A very successful recruiter I worked with in the past used to defend his margin in 0.1% segments. It’s a healthy mindset to be in.

So, you’ve got your game face on. How about a few ideas.
Know your market- if you’re going to negotiate anything, then you really need to know what’s happening in your market. What are your competitors doing? Not because you should copy them, but you need to know if you’re offering lower than market margins (price disruption), or higher than market numbers (feature service).
Know your limits- before you get into a negotiation, it’s good to set your own parameters. I can tell you from experience that you’ll give way too much away if you haven’t defined your own limitations before you start. So define your walk away points, and stick to them.
Set expectations- it’s perfectly reasonable to tell your client or your candidate that you’re going to expect something specific in return for a discount. For example; my margin is 20%, but if you want to discuss any kind of discount, then be aware that I’ll need more favourable payment terms, or a level of exclusivity on the roles.
Show them where the magic happens- I saw something last week in one of my feeds discussing the ‘hourly rate’ for a recruiter. I.e. You charge a client a £12,000 fee, but you delivered the candidate 2 days after getting the role. Therefore your hourly rate is at least £500 per hour. This might seem ridiculous (because it is), but this will only be an issue if the person you’re negotiating with has no idea what you actually do all day. Invite them into your office. Or, at the very least, explain in detail what you actually do, and how. That should help them to value you a little more. Most of the recruiters I know work very hard for their living, doing a job that can be brutal. Maybe your client hasn’t seen that.
Give structured, professional discounts- rather than just agreeing to drop your margin by a few points over the phone when you’re trying to close, try to be a bit more corporate with your approach. Create a discount proposal, with a structure and conditions. It will reflect well on your professionalism, and should secure you better margins and better relationships.
Understand Value vs Cost- I remember, as a student, I once bought a 2 litre bottle of a supermarket, own-brand cola. I was thirsty, and it was cheap. Surely a match made in heaven? Except the taste was so unexpectedly horrendous that I couldn’t bring myself to drink more than a couple of gulps. The lesson in there is about value vs. cost. When value hits (Coke) zero, it doesn’t matter how low the cost is, it’s still wasted money.
Of these things though, the most important is definitely mindset. Don’t be defensive about defending your margin. And don’t be embarrassed about trying to make money. Having a profitable business isn’t something to be ashamed of, unless you’re Snapchat.
Remember; if you really are a special snowflake, then you can charge special snowflake prices.
Martin Jones is a Recruiter. From 1999 onwards, he’s worked across multiple sectors and geographies, generating revenue and leading teams. He is a Partner at KnownFour, where recruitment and life can co-exist...