When you’re running a recruitment agency, the design of your commission structure is really important. It impacts your finances, drives performance, and ultimately shapes the future of your business.
But which commission structure is best?
In this article we’ll explore four different options to help you make the right choice for your agency.
What are Commission Structures in Recruitment?
Commission structures refer to the framework or systems put in place by agencies to determine how recruiters are compensated for their efforts in sourcing and placing candidates. These structures outline the method by which recruiters earn a portion of the revenue generated from successful placements.
What are the Best Commission Structures for Recruitment Agencies?
There isn’t really one structure you could describe as the best, as it depends on the scale of your business, the experience of your recruiters and whether you recruit for temporary or permanent positions.
Here are four commonly used commission structures, including their pros and cons.
Base Salary Plus Commission
The most commonly used commission structure is base salary plus commission. Recruiters receive a fixed base salary, in addition to commissions earned from successful placements.
Upsides
- It provides your team with a predictable income, giving them financial stability.
- By combining a fixed salary with performance-based incentives, you’re striking the balance between stability and motivation.
Downsides
- Recruiters may become complacent or less motivated to exceed targets if they’re comfortable on the fixed base salary.
- If you’re a start-up agency, base salaries add to the agency’s fixed costs, impacting profitability, particularly if performance doesn’t justify the expense.
Tiered Commission
Tiered commission structures offer varying commission rates based on performance tiers or thresholds. This is typically on top of a base salary.
Upsides:
- They provide clear incentives for recruiters to surpass their targets and achieve higher earnings.
- Allows you to reward different levels of performance, ideal if you employ both new and experienced recruiters.
Downsides:
- Recruiters could feel demotivated if they fall short of higher-tier thresholds, leading them to potentially become complacent.
100% Commission
Straight commission, also known as 100% commission, is a structure where recruiters are compensated solely based on the successful placements they make. They receive a predetermined percentage of the fee charged to clients when they place a candidate, without any base salary.
Upsides:
- It can be highly motivating for experienced recruiters as there is no limit to their earning potential.
- For start-up recruitment agencies it can be more cost-effective, as you’re not having to find base salaries each month.
Downsides:
- You may struggle to attract recruiters who don’t enjoy peaks and troughs in their income.
- Recruiters also have no reason to stick with you! They could burn out and take their skills elsewhere.
Retainer Fee Plus Commission
In this commission structure, recruiters receive a retainer fee upfront for their services, in addition to commissions earned from successful placements. The retainer fee acts like an advance payment against future commissions and ensures a steady income stream for recruiters.
Upsides:
- Retainer fees provide recruiters with financial stability, regardless of placement outcomes.
- They signify a client’s commitment to working with the agency, allow you to build a strong relationship.
Downsides:
- Recruiters could feel less motivated to secure placements if they receive a retainer fee upfront, potentially affecting performance.
- There is more pressure to deliver results to justify the retainer, potentially leading you to compromise on your quality standards.
Looking for support to make the right decision?
Here at New Millennia we’ve supported hundreds of start-up recruitment agencies over the years.
We know there are so many decisions to make, and you want to get it right from the start, especially when it comes to your finances.
Get in touch for a chat about how we can provide 100% risk-free funding, leaving you to focus on the bigger things.
For an informal chat about our services, get in touch.
