The Difference Between Retained and Contingent Search Services

By Jennifer Colosi
Colosi Associates

You need an A-player to fill a crucial position at your company. You decide to go with a search firm, but you aren’t sure which one to choose. Like a lot of experienced managers, you might not be looking forward to outsourcing such an important task. The bottom line is: you want a firm you can trust that isn’t going to waste your time and money. 

I’m often asked, “Why do I need a retained search firm? I’ve used staffing, contingent agents in the past”. Clearly, I’m biased. I founded a retained search firm, because that’s the kind of work that I see benefits clients the most for hiring very specific, harder to hire roles.  But I’m also well acquainted with contingent firms and sometimes that’s what I recommend. The important thing is choosing what (and who) is right for you. 

Here’s my advice:

Understand the process difference. It’s not just a payment timing difference.

Retained firms get paid at the start of the search and at several points during the process, whether or not you ultimately decide to hire a candidate they recommend. Contingent firms are paid only if a candidate they suggest is placed in your company. 

So why not go with a contingent firm every time? Because retained firms provide a far more personalized, in-depth search process. Your retainer payment at the outset is “skin in the game” for both you and the recruiter to achieve the results you agree on. 

You have to decide if your needs are better addressed by a quick process that can yield a lot of candidates with good resumes or by a more extensive process that entails getting to know people at the search firm, letting them get to know you, and establishing a long-term relationship that yields fewer candidates who may be better matches—and who your search firm may need to cultivate and hire away from another company.

Assess your needs first.

What kind of experienced professional or executive does your company need? Are you starting a new project with a major deadline and need a dozen people brought on board in a few months? Do these professionals need to bring a skill that only a handful of people have? Or can they get the job done with skills that a larger population of job seekers offers?  

What is your company’s hiring culture? Do you want to spend the time—and it does take time—to find the right firm and then hand the search over to someone you really trust and feel you know? Do you want to work closely with the search firm to possibly hire a highly desirable candidate away from another company? Or, do you just want to increase the number of good resumes your HR department is getting and do most of the screening yourself? 

Retained firms:  What you get and what you risk.

From the outset, it may look as though hiring a retained firm is more expensive than going with a contingent firm. It certainly can be. It covers all the costs of your search: 

• Meeting with you and others in your company to assess your needs;

• Making suggestions that you may not have thought of when it comes to the kind of candidate you want to fill a particular position;

• Conducting a thorough search that includes recruiting A-players who are often already employed;

• Presenting you with a long list of candidates and then narrowing it to a short list of those who appear most suitable for the position;

• Taking you through the interview process; and

• Working with you to create an exceptional opportunity for a candidate who may be happily employed, but could find an even better home in your company.
  
  

Retained firms focus on the long haul. You are paying for their current network and ability to expand their network with newly identified potential candidates (i.e., cover the market). Candidate skills change daily. Candidate interests changes daily. This dynamic makes the effort to cover the market a fresh exercise each time the search firm begins a new assignment.

Think of it as a “smart” network, as opposed to the somewhat indiscriminate outcomes you get with searches on linked in or other sites. Before the information age kicked into gear, it used to be hard to identify potential candidates (i.e., source names) and obtain some level of background information on them without contacting them directly. Now that part is easy. The shift in effort and challenge is in creating an exceptional opportunity for a particular A-Player candidate and evaluating those candidates for “fit.” 

A good retained firm knows the best people in the field and how to look for qualities that may not be on a resume. It knows whom to ask and what questions to ask. And it will do that for you. Just as importantly, it will disqualify the wrong candidates—and commit its time to making sure you don’t hire the wrong person. During the search process, you spend some time working directly with the firm, but do not have a lot of interchange with the candidates until you want to. You aren’t spending your time filtering through resumes.

The risk of going with a retained firm is that you need to find one you can trust that has a great track record. The significant energy spent to choose the right search firm will be time well invested. The firm you choose can then take it from there while reporting back to you and consulting with you. Our experience is that the number-one influence on the speed and success of a search is commitment to almost constant communication between the hiring manager and the firm during the search.

Do your research. Ask colleagues you respect about whom they worked with in the past and whom they like. Ask about how the communication went. Did the firm go silent at times? Just like job candidates, search firms are defined by different characteristics. Find out if there’s a good personality match between the firm’s leaders and you and your company. Meet with them. Spend time interviewing them. Spend time telling them about your company and its values. Decide if you want them to represent your interests.

A good retained firm will also spend time researching your company and getting to know you. It will make a responsible decision about whether you have a top notch executive team. It should be just as concerned as you are about whether you two are a match. You are making a joint commitment and the relationship you forge is risky for both of you. 

The guarantee period for a retained firm is typically six to nine months, significantly longer than the average contract with a contingency firm, which can be fantastic if you are working with people you like.

Contingent firms:  What you get and what you risk.

It’s pretty clear that, if you are looking for a candidate with refined specialties in an area where there aren’t many experts, a retained firm is the way to go because it will give you the time and expertise you need. But what if your company is embarking on a big project and you need numerous mid- to upper-level employees to be hired very quickly? What if all you need is someone with the right generalized skills who is professional and a good fit for the work you need done right now? If your needs are more immediate than individualized, you might want to go with a contingent firm.

A contingent firm can provide you and your company’s HR department with a lot of resumes from their inventory very quickly—within days or weeks. It won’t be doing the major research of a retained firm.

Its emphasis will be far less on recruiting someone who is already gainfully employed, but it will be able to tell you about candidates who are immediately available who might be a fit. It won’t narrow candidates down only for you, rather it will pass good resumes to you and to other companies with whom it is contracting. If you and your HR department can act quickly, and want to do so, you will have a number of resumes from people who are on the market that you might not have otherwise had, allowing you to make your selection from more candidates. If you want your HR department as involved as possible, and you want every decision—even the small ones—to stay in-house, a contingent firm may be better than a retained firm.

Contingent firms cost less at the outset because you pay them only if you hire someone they recommend. These firms often work with many clients at a time, and they work quickly. Their replacement guarantee period is typically two to four months.

A lot of companies find they like to work with more than one contingency firm at once, or contract with another firm if the first didn’t yield what they needed. This is where contingency firms can get costly – in terms of your time. Make sure you do the math: The success rate of a contingent firm on any one open order is thought to be less than 50 percent. A contingent firm’s metric for success is the number of “send-outs” to interviews (the more send-outs, the greater probability one will result in a placement and, thus, a payment to the firm).  If your company works with two contingency firms, or even three, is it still going to be cheaper and more efficient than a retained firm? Make sure to calculate your and your company’s time and energy into that equation.

The real risk with a contingency firm is that there is almost no fallout for the firm if it presents many candidates with a wider range of skills, accomplishments, and interests and lets the client do the vetting. The onus is on the company looking for candidates, not on the search firm. It’s often called a “candidate-driven” model (rather than a “client-driven” one).

Also, because contingency firms work with so many clients at once, you may receive a number of resumes and call candidates you like only to find out that those people have already found a job. The firm may not get in touch with you on a regular basis, because it has a lot of clients and operates by volume (another company may have positions that are easier to fill - or are paying the search firm a higher fee), so you may have to reach out to them when you need something.

The bottom line.

Ultimately, only you can assess the cost of hiring a candidate who isn’t right for your company, or even someone who is only a good and not an excellent match for the job. Make sure you think about whether speed and quantity are most important, or if you would prefer a more individual search that might take longer. Most importantly, do your research and choose a firm you feel good about.