16 January 2014

Guarantees: Stop letting clients penalise you for their stuff ups

As I checked back into ShortList for the New Year, I was greeted with the first headline of 2014 'Impossible to predict length of Australian downturn: PageGroup CEO'. The article goes on to detail the period-on-period declining results for not only PageGroup but also Hays, Robert Walters and Data 3.

You don't need to have been in this industry for very long or look very far or talk to too many agency owners or executives to find evidence that profit margins are continually being whittled away.

How does this happen?

We, as in industry, have let it happen. The never ending quest to win more business turns into a race to the bottom with fees and margins being squeezed tighter and tighter.

Recruitment agency owners are, mostly, being sucked into a vicious cycle of having to pitch ever-lower to win business while at the same time being asked to accept even more risk, on behalf of the client and manage even more risk within their own business as a result of ever-greater government workplace regulations (eg discrimination, OH&S etc).

It's a topic that I keep returning to.

Well, another year has just kicked off and I'm here to tell you, yet again, look out!

There are significant changes to The Privacy Act that come into force on 12 March 2014, only seven weeks away.

I urge you to read this excellent article posted on the Certex website about how these changes are likely to impact recruitment agencies. As the article says:

There are two new principles on cross border disclosure and direct marketing. The powers of the Commissioner of the Office of the Australian Information Commission to impose fines and conduct audits have been substantially increased. In addition, there is a major change to the underlying platform for privacy management. APP 1.2 refers to "practices procedures and systems".

Privacy is a finely nuanced and multifaceted concept because it is a fundamental human right to have and to protect ... It is important on every level, and takes many hours of time and preparation to get right. It is forgivable to be caught a little unawares today, before a breach has even occurred, but stringent penalties await those who are complacent or careless in causing a breach.

I would also recommend this excellent interview in Scott Recruitment's Inside Recruitment, with Charles Cameron, Partner at FCB Group, in which he talks about a few of the risk issues that recruitment agencies need to be aware of, specifically the legal status of on-hire employees and the responsibility that agencies have for such employees, especially with respect to workplace safety, including bullying and anti-discrimination.

The chief topic of this rant on agency profitability and endless margin and fee slashing is an issue I haven't written about previously; the issue of providing refunds or extended guarantees.

Again, it seems that when companies or government departments and agencies send out RFTs they expect that agencies will roll over on the issue of ridiculously extended guarantees, including money-back clauses.

One agency owner, fed up with these ridiculous requests shared with me his response to a client who recently requested a six month money-back guarantee to be inserted into a contract. This was what he wrote to the client:

‘Our agency provides a candidate search and vetting service which requires us to work free of charge to provide a small qualitative shortlist of candidates to our clients for open roles we are given, on the understanding that we will be paid if and when our client decides to hire one of our candidates.

As a way of helping to share with our clients the inherent risk of hiring we offer a standard replacement guarantee of 3 months from date of hire, by which we agree to repeat our part of the recruitment process without re-charging the client. A guarantee which in recognition of the good working relationship we have had in the past we are happy to extend to 6 months.

By requesting the insertion of a refund clause, what is actually being requested is that our agency underwrites the entire recruitment process, including your company's own internal interview process , the subsequent hiring decision that is made as a consequence of it and the ongoing human interface and working relationship between your organisation and one of its employees.

Your organisation's interview, decision making and management processes are clearly beyond the influence and control of our agency, as well as being totally unrelated to the service we are engaged and paid to provide. Therefore it is unfair to expect us to return fees paid to us for our part of the process, when the issue will have occurred after your organisation has made the hiring decision.

With this is mind can I please request that the clause is removed and the extended guarantee period inserted in its place".

What a magnificent piece of logic (and writing). It's absolutely true.

Why should a recruitment agency have to accept financial responsibility for six months over which they have no direct control? It's agencies conceding to this sort of client request that kills profitability (let alone morale).

This year I encourage you all to look very, very closely at what you are conceding to in every client negotiation, agreement, and contract and ask yourself this:

‘What are the potential costs of this concession?'
‘Is it fair?'
‘Is it worth it?'

I suspect that what you thought about agreeing (conceding) to might cost you much more than you stand to gain.

In 2014 and henceforth, stand behind your value and don't be intimidated by clients suggesting that your position is unreasonable or that ‘other agencies aren't objecting'.

The recruitment industry cannot, and should not, tolerate margin erosion any longer.

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1 comment:

  1. As always,brilliant post Ross! I believe that,(almost in most cases) whenever a client demand for discounts of our fees or makes the ridiculous request of the insertion of a refund clause in the order/contract to an agency,it means that the agency somewhat failed in one of it's major responsibility to convince the client on it's value proposition! In the circumstance, where you've willingly or inadvertently 'allowed' the client to 'commoditize' your services, all things are possible, even the ridiculous! By the way, talking even about commodity, when was the last time you bought anything;car,laptop,wristwatch, tie,shirt, pants etc. based purely on price consideration? If it was so, then the Lamborghini,Ferrari, Ipad, Rolex, etc. will not command near fanatic patronage of their loyal customers all over the world! My candid advice to agencies:strive more to qualify your clients and choose who to provide your unique services to and stop chasing after every client in the marketplace.

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