Should I Use a Contingency or Retained Search Firm?

If you're considering using a search firm to find some mid-level and higher managers, you need to decide whether to use a contingency or retained search firm. There are two main differences between contingency and retained search firms: how they look for job candidates, and how they get paid.

Contingency firms are transaction-oriented — that is, they get paid only if you hire a job candidate they present to you. Typically, contingency firms maintain relationships with dozens of companies. When they find a topnotch candidate, they present the hot prospect to as many firms as possible.

If your company is looking to fill a position quickly or fill a mid-level position, using a contingency firm could be a good move. Contingency firms have a great "deal flow" of candidates, which means they can meet short-term staffing needs. However, these firms rarely take the time to really get to know your company's needs. Your hiring manager may get contacted many times with a hard sell about a prospective candidate who may or may not be a great fit.

Retained search firms, on the other hand, are consulting-oriented — they get the same fees no matter how long it takes to find the right job candidate. Retained search firms fill your company's vacancies by getting to know your company's needs and finding a candidate with the exact skills you're looking for. In essence, they're working for you. They are best-suited for senior-level management positions where there are fewer qualified candidates, and the challenge is recruiting the talent from a competitor. Because of that, retained search firms don't always succeed. In fact, the industry-wide "fill rate" for retained search is less than 100 percent — some say it's more like 70 percent.

Contingency firms usually charge less than retained firms do — but both can charge anywhere from 20 to 33 percent of the prospective employee's first-year salary range.