Blog
Traditional headhunter fees - where does the money go?
July 31st, 2008 in Random musings
My partner, B and I have been reading up a bit more on the headhunting/recruiting industry to get a better sense of our competition. In our analysis of the financial statements of the leading headhunting firms, we came to some interesting conclusions.
Companies get charged very high fees (24% and up) so that the headhunting firms can advertise widely to build their databases. For every dollar in fees that the headhunters receive, 50%-60% goes towards advertising costs. Imagine that ! In essence, companies are paying headhunting firms for the privilege to advertise for them and build the headhunter databases so that the headhunters can then fill more positions with the firms. It is truly a database game for these firms. An additional 30% the goes towards the salaries of the headhunters and their nice offices. Operating margins are between 10-20%.
Now imagine that if the referral network does work, how much of that cost savings can be passed on to the employers (as what we are trying to do now). However, our employers do not see it that way yet.