On the surface, the difference between contingency and retained search appears to simply be an issue of how a search firm gets paid. A contingency recruiter earns a fee only when a company hires a candidate they send out. On the other hand, a retained search firm secures a percentage of the fee upfront before they even perform a search.

Why pay for something before you get it?

This question implies that what you are paying for is a new employee. But that's a false notion. What you're actually paying for is a quality candidate pool to choose that new employee from.

Your financial commitment upfront, or lack thereof, is precisely why the search process, level of dedication, and quality of the candidate pool you can expect are so different between the two search types.

Contingency Search

Without being paid in advance, a contingency recruiter has no assurance of being paid at all. Consequently, contingency recruiting is purely a numbers game where success depends largely on factors outside of the recruiter’s control. With these kinds of odds stacked against them, it's no wonder contingency recruiters are notorious for poor service, unscrupulous tactics and an aggressive telesales mentality.

Since there's no guarantee of getting paid, contingency recruiters can't afford to commit to you as a client or dedicate much time to your important search. And because contingency recruiters don't require a financial commitment upfront, they encourage you to engage multiple recruiters simultaneously. Yet, all this does is create fierce competition between all of your recruiters for the same "active" candidates. As a result, the focus is not on finding you the best possible candidates, but on being the first to send you the easiest to find "potential" candidates.

The constant fear of not being the first to discover and send you the easy to find candidates thwarts any efforts by contingency recruiters to dig deeper to find you less obvious but higher quality candidates. Therefore, contingency recruiters rarely reach beyond their own database and public job boards to find you candidates. Obviously, this approach leaves a vast pool of talented passive candidates untapped. That's exactly why contingency recruiters rarely ever deliver "A" players.

To compound the problem, contingency recruiters don't use a structured search process. This means no time is spent on need analysis which results in a superficial job understanding and therefore a severely misguided search. Consequently, the chance of a candidate mismatch is significantly increased. While good candidates are sometimes recruited by contingency recruiters, they're often hired for the wrong reasons and quit or are terminated which translates into a costly hiring mistake.

At an estimated cost of 24 times an employee's annual salary, hiring mistakes represent billions of dollars in financial loss to businesses. Some estimates put the percentages of hiring mistakes in the 50% range! Without doubt, contingency recruiting is a factor in the colossal hiring mistake rate and the exorbitant amount of wasted money associated with it.

Retained Search

Unlike a contingency search firm, a retained search firm has a true "client" relationship. A retained search firm works in a genuine consultancy capacity with you to upgrade your talent corps across the board and to formulate a winning talent acquisition strategy.

If you are serious about hiring right, the benefits of a retained search are tremendous. Your advance payment secures a high level of commitment from the search firm. This means they will dedicate a team of sourcing professionals to your search, set target dates for specified deliverables, use deep network sourcing, and give you the right of first refusal on every candidate they find.

This degree of effort is essential to perform the type of candidate research it takes to deliver high potential candidates. The reason being that top candidates are usually not active "job seekers" and therefore don't have their resumes posted online where contingency recruiters can find them.

Like any true consulting relationship, the level of energy and resources that a retained search firm must invest in your business is simply not feasible without any assurance of ever being paid. Because of your financial commitment upfront, a retained search firm can safely invest the time and effort required to source high quality candidates for you. That's because they know they will ultimately fill your openings and be compensated for their efforts.

Conclusion

Contingency recruiters merely fill jobs. Retained recruiters bring talent to the table. Contingency recruiters have tactical relationships with businesses. Retained recruiters have strategic partnerships with their clients.

Every company that puts a premium on quality hiring and is in the market for "A" players uses a retained search firm. Retained search is clearly the best option for filling positions of strategic importance. Obviously, that includes executive leadership and high level management positions; but it also includes high-skill IT positions such as software designers, developers, team leaders and architects. In short, retained search is the only sensible option if the person you are hiring can directly impact the performance of your organization.

If the fee is reasonable, contingency search is practical for positions that require a commoditized skills set that is widely available and easy to replace. In other words, there are many qualified candidates on the market. Unfortunately, the fee is never reasonable and at 20% - 30% contingency recruiting is a big waste of money. If you're willing to pay that much for finding job board candidates why not just pay one-third upfront and get topnotch full service provided by a retained recruiter for the same price?

Or consider using Job Board Recruiters. By offering a fee of 5.8% at least they're savvy enough to know what contingency recruiting is actually worth.