October 28, 2015

It’s Budget Season — Confront Your Convoluted Agency Spend

HorizonNow is the time when business leaders get serious about planning. We look back and review our past year’s performance to better plan for next year.

In other words: It’s budget season.

As a recruiting leader, your budget season is especially challenging. As you equip yourself with more tools, you gain more control over your budget and the choice to allocate funds appropriately. But how do you make decisions on recruiting spend that are not within your control? The largest chunk of your budget, your agency fees, are usually not fully understood. How do you plan for this?

The most important piece of information you need during the planning process is: how to align yourself with your agencies the right way.

This brings perspective to your talent acquisition goals.

Once you have an understanding of how your agency’s performance aligns with your talent acquisition goals, you’ll have laid the foundation for analyzing your agency spend, making budget season a whole lot easier.

Think about 2016 from two different perspectives: how you’ve budgeted in the past, and how this strategy will change for the future.

Last Year, You Probably Didn’t Advocate for the Right Direct-Hire Recruiting Agency Budget

Recruiting leaders don’t always have data-driven insights to support them in advocating for agency spend, which often leaves them with the wrong recruiting budgets.

While you may be vaguely aware of your current spend on direct-hire recruiting agencies — an awareness that probably ranges somewhere between “unease” and “panic” — quantifying this chaos is your best option for making budget season a bit easier.

Agency spend is often discussed without supporting data because it’s hard to quantify without the right tools. Yes, you can count invoices, but who has the time? Agency fees are spent through many different channels and contracts, which makes gathering this data a huge challenge.

Everyone wants this portion of their budget to be lower. The key is to plan for it. Bersin by Deloitte recently released some valuable data on the matter, according to which “[a]gencies and third-party recruiters claimed 18 percent of the recruiting budget in 2014.”

That’s a huge part of your budget. How can you plan to allocate it correctly? There are two common responses to agency planning: freezing all agency hiring because spend “is out of control,” or assuming that agency spend will be roughly the same as last year because “If it’s not, broken don’t fix it.”

FlagsThese responses aren’t proactive, and they rarely align with a recruiting team’s strategy and goals.

Without the right insights to fuel a knowledge-driven recruiting strategy, you can’t know the best ways to allocate your funds.

Stop Getting Grief for Lack of Knowledge: Empower Yourself With Data on Agency Spend

Don’t make the mistake of assuming your spend on agencies this year is what you should allocate next year. The same goes for budget cuts — don’t blindly assume you need them.

Companies commonly use agencies because they need extra short-term recruiting capacity, they have niche roles they need to fill, or they have an urgent role that requires an immediate placement. In the short term, too many companies only use agencies reactively for reason No. 3. Planning for long-term agency-use saves money and allows you to operate more strategically.

To operate strategically, you need information. But before you even look at data, insights or any other information you’ve collected regarding your agency spend this past year, you need to think about your future hiring initiatives.

Maybe there’s a department expansion in the near future with which your recruiting team doesn’t have a ton of experience. Maybe there’s a critical position opening up that you know you might need some extra bandwidth to fill. Plan for agency spend based on predictions such as these, then incorporate insights you’ve gained from past year’s data.

What I wouldn’t recommend is a plan to use direct-hire recruiting agencies simply because that’s how roles in a certain department have traditionally been filled. Instead, you need to focus on your organization’s goals.

If you aren’t tracking agency performance now, make it a goal to start tracking next year. Information like time-to-fill, interview rate, and candidate success determine whether or not your agency relationships are of value.

Don’t Get Spooked by Your Data; Learn From It

I’ve personally seen organizations become overwhelmed with their lack of strategy once they started tracking their agency spend — and their reaction wasn’t necessarily the best.

LightsA few years ago, our team helped a Fortune 500 bank simplify its direct-hire agencies processes and get data on agency spend for the first time ever. The company was shocked by how much it had spent, and it froze all hiring through agencies as a result.

While this may seem like a reasonable reaction in the face of high costs, this firm reacted emotionally, shutting down opportunities and resources it may have needed. The company cut costs in the short term, but lost out on critical hires as well. After six months of a painful freeze, the company reengaged with the agency market in a more proactive and controlled way — re-strategizing and building a plan for future direct-hire agency spend and management.

A lot of the uncertainty surrounding the allocation of agency funds derives from the simple fact that agency fees require writing a check, and that’s not easy for a recruiting leader to overcome.

There is some good news: in the future, you may not have to over-allocate funds to account for rises in agency fees. Forward-looking data predicts that fees will stop rising as soon as 2016.

Whether or not fees rise, your focus should be on the value these agencies provide for your organization and your talent acquisition team. Tracking and quantifying this performance will take the heat out of budget season and make planning for next year’s strategy much easier.

Read more in Recruitment Agencies

A veteran of more than 20 years in enterprise technology, Mike lives with his family in New York City, stubbornly races (and loses) Masters crew races every fall, and has been CEO of BountyJobs since 2009.