Industry Trends & Insights
Should you charge retainers? 3 models that actually work for small agencies
Explore three retainer models that can supercharge your recruitment agency's growth: classic, performance-based, and hybrid. Discover their unique advantages and implementation strategies.
Chris Allen
Co-Founder & CEO
Retainer agreements have become an increasingly popular choice for recruitment agencies, especially when filling executive, niche, and hard-to-fill roles. These agreements offer a deeper partnership and focused search compared to traditional contingency models, providing agencies with predictable income, improved cash flow management, and stronger client relationships. However, retainers also come with some drawbacks, such as reduced flexibility and increased pressure to deliver. In this article, I will explore three retainer models that can work well for small recruitment agencies: the classic retainer, the performance-based retainer, and the hybrid retainer.
The classic retainer: a foundational approach
The classic retainer model is based on a phased payment structure, typically with 25-30% paid upfront, 40-50% after shortlisting or interviews, and 20-25% upon placement (RecruitersLineUp.com). The retainer fee usually ranges from 15-25% of the first-year salary per placement, with payments divided across milestones (Techneeds.com). For example, an agency might charge £10,000 for a senior engineering role in London (50% upfront, 50% for hire) or $3,000 for a marketing manager (20% upfront, 80% at placement) (Relancer.com).
When implementing a classic retainer model, it's essential to clearly define the scope and deliverables, such as the shortlist presented, interviews scheduled, offer acceptance, and candidate start date (RecruitersLineUp.com). Best practices include communicating expectations and scope clearly in writing, reviewing agreements regularly, and maintaining responsive communication with clients (FunctionFox.com).
The classic retainer offers several advantages, including:
Predictable and stable income stream, reducing feast-or-famine cash cycles
Improved cash flow management, helping agencies forecast revenue and manage working capital
Stronger client relationships, fostering exclusivity, trust, and collaboration
However, it also comes with some challenges:
Reduced flexibility due to higher initial commitment from clients
Potential for scope creep if agreements are vague
Pressure to deliver quality and speed with guaranteed income
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The performance-based retainer: aligning incentives with results
The performance-based retainer links payments to quantifiable results, such as hires, candidate quality, retention, or time-to-fill (SPP.co). For example, an agency might charge a base fee of $2,500 per month plus $500 for every 10% improvement in a defined KPI (SPP.co). This model encourages recruiters to align directly with client business objectives, such as speed, quality, or diversity metrics.
To implement a performance-based retainer, agencies must work with clients to set clear metrics and payment tiers. Common KPIs include the number of hires per quarter, time-to-fill, candidate retention rate, and diversity benchmarks (SPP.co). Companies may also pay tiered bonuses for exceeding baseline metrics.
The performance-based retainer offers benefits such as heightened motivation and potential for higher earnings if targets are exceeded, as well as improved client satisfaction with compensation tied directly to results (SPP.co). However, it also comes with risks and considerations:
Metrics must be carefully defined to avoid disputes; ambiguous targets can breed dissatisfaction.
External factors like market shifts or client delays can impact agency performance, complicating payout triggers.
Client expectations for fast or guaranteed results may exceed industry norms, so regular education and updates are critical.
The hybrid retainer: balancing stability and performance
The hybrid retainer combines classic and performance-based models, establishing a base retainer fee for guaranteed access and service, with added performance bonuses for exceeding KPIs (SPP.co). A common ratio might be 60% base fee and 40% contingent on performance milestones. This approach balances revenue stability with motivational upside, helping agencies attract a broader range of clients (SPP.co). It also reduces the risk of scope creep and under-delivery common in pure performance arrangements.
When implementing a hybrid retainer, it's important to spell out base vs. bonus criteria, fee breakdown, frequency of reviews, and adjustment processes (SPP.co). Milestone and KPI definitions should be transparent, realistic, and mutually agreed. Regular reviews of model effectiveness and client satisfaction (at least quarterly) are also recommended. This model can be particularly appealing for agencies seeking to scale by building recurring revenue while incentivizing team performance.
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Choosing the right retainer model for your agency
The right retainer model for your agency will depend on several factors:
Agency strengths and weaknesses: Agencies specializing in executive or technical hires may benefit more from retainer models, while generalist agencies may face resistance (HRLineUp.com).
Client preferences and needs: Consider the client's hiring urgency, budget flexibility, and openness to strategic partnership. High-growth startups, for example, often prioritize speed and exclusivity (FidForward.com).
Growth stage and goals: Retainer models can be a good fit for agencies seeking predictable cash flow and closer, more strategic client relationships.
When setting retainer fees, benchmark against market rates (15-35% is the industry standard for contingency, while retainers are often negotiated lower but with additional strategic value) (FidForward.com). Clearly articulate the value delivered, such as talent insights, market analysis, reduced time-to-fill, and improved candidate quality (HRLineUp.com). Leverage your agency's experience and niche expertise, such as salary benchmarking and passive candidate networks.
It's also essential to continuously monitor and refine your retainer strategy. Gather client feedback after each hire or milestone to improve service. Track key performance indicators like time-to-fill, placement retention, and client satisfaction scores (SPP.co). Adapt fee structures to market dynamics, such as the growing demand for reskilling and the fact that hard-to-fill roles now take 50% longer to fill than general positions (FidForward.com). Stay current with industry trends, such as the projection that 50% of employees will require reskilling by 2025 and the rising cost-per-hire for tech roles, which now exceeds $4,000 (FidForward.com).
Finding the right fit for your agency and clients
Retainer agreements can offer significant benefits for small recruitment agencies, including predictable income, stronger client relationships, and the potential for higher earnings. The classic retainer, performance-based retainer, and hybrid retainer models each have their own advantages and challenges, and the right choice will depend on your agency's strengths, client needs, and growth goals. When implementing a retainer model, it's essential to clearly define the terms of the agreement, set appropriate fees based on market rates and the value you provide, and continuously monitor and refine your strategy based on client feedback and key performance indicators. By carefully considering these factors and choosing the right retainer model for your agency, you can build a more stable and profitable business while delivering exceptional results for your clients.
As you explore retainer models for your agency, remember that success often comes down to building trust and delivering value. Whether you're working with a Fortune 500 company or a fast-growing startup, focus on understanding your clients' unique needs and tailoring your approach accordingly. By combining the right retainer model with a commitment to excellence and continuous improvement, you can position your agency for long-term success in an increasingly competitive market.
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