Direct Hire Agency Spend: The $8 Billion Leaky Faucet

153430966Recruiting departments in corporate America, from the smallest start-up to the largest Fortune 500 brand, will spend $8 billion next year to hire some of their most critical employees through direct hire agencies. Yet with few exceptions they will have no idea whether their strategy is effective or even how much money is going out the door.

Most of these same companies adopted vendor management strategies a decade ago to control costs with staffing vendors that provide contingent workers. Why haven’t more companies taken the same approach with direct hire? The risk of mismanaging direct hire vendors, also referred to as headhunters, is enormous.

According to Staffing Industry Analysts, companies in North America will spend $8 billion on direct hire agency fees alone in 2014, up 8 percent from 2013. That number is more than double the $3.5 billion spent in 2009. Moreover, according to SIA, companies use direct hire agencies to source their most skilled and senior candidates. In a decade of tremendous recruiting innovation (from job boards to LinkedIn), agencies are not only holding their own, their business is exploding.  Nevertheless, few companies even track direct hire agency spend on a regular basis. Even fewer have standardized processes and metrics around usage, compliance or performance for a very fragmented set of important vendors.

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How does such a critical part of recruiting slip below the radar?

Simple math: $8 billion is a big number, but a lot smaller than the $111.5 billion that SIA estimates U.S. companies will spend through temporary staffing vendors in 2014. Unlike temporary staffing budgets, which are big enough to be centrally monitored, direct hire agency spend is often hidden in various P&L’s across the company. Ironically, the organization most sensitive to inefficient agency usage is often reluctant to acknowledge it. Recruiting departments worry that using agencies reflects poorly on their ability to source candidates, when in fact a sound agency strategy augments a strong recruiting team.

If no one in the company can track monthly spend and performance, the likelihood of mismanagement is too high. Direct agency spend may be “only” $1 million to $2 million in a company that spends ten times that number on contingent hires, but what company can afford a 50 percent “rounding error” in a million-dollar line item? More important, what company can afford not to have clear and measurable processes for choosing and working with the agencies that provide their most critical candidates?

If you recruit through direct hire agencies, let me know if you’re seeing the same challenges or, if you disagree, why the above issues aren’t a concern for you. In two weeks, I’ll follow up with a post about what some industry-leading recruiting teams have done to “plug the faucet.” There is no magic bullet, no one technology vendor and no set of agencies that is going to be the answer. The most forward-thinking recruiting departments have solved this through strategy, measurement and process. I’ll share examples of all three in my next post.

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Mike Hard
Mike Hard is the CEO of BountyJobs, an enterprise agency management company. He can be reached at mike (at) bountyjobs (dot) com.

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