5 min read

From hourly pricing to value-based pricing

From hourly pricing to value-based pricing
Photo by Anne Nygård / Unsplash

Buyers in the recruitment industry have been mainly buying recruitment services in two ways:

  1. Recruitment projects - E.g. finding a salesperson. The project cost is around 2x the monthly salary.
  2. Hourly pricing is mainly for ongoing monthly agreements with 100% or 50% allocation.

Here's my opinion on these two:

Option 1 projects: As a recruitment agency, it's quite easy to get your hourly rate a good rate, but there are three challenges:

  1. If you are unable to sell more --> Your sales cost is typically too high compared to the project.
  2. You take quite a big risk since you are only getting paid when the recruitment is done.
  3. It might bring some cashflow issues if you are only invoicing by success-fee

Option 2: ongoing partnership. The problem: It's quite hard to get your hourly rate e.g. to 200€ per hour because the buyers are used to pricing around 80 - 110€ / hour.

We want to focus on ongoing partnerships for two main reasons mainly:

  1. It's better for customers --> When we understand their culture, and business strategy & can tie those to talent acquisition strategy and build talent pipelines, we are able to bring better results.
  2. It's better for us --> Recurring revenue: easier to forecast, easier to hire people & easier to sell TalentBee someday.

So how to get the ongoing model to be tied to something other than hours? That's the big question I've been trying to solve lately, and I feel like we are getting there.

I most likely shouldn't be sharing this because it is so valuable to our competitors, but so be it. I believe it will change the industry for the better.

The biggest problem with hourly-based pricing: It punishes the agency for being efficient.

Let's take an example of two agencies both selling 100€ per hour:

Agency number 1 does outreach the traditional way and takes 8 hours of time to do it and eventually gets 5 interviews with potential candidates. The customer pays 800€ for these 8 hours of work.

Agency number 2 (that's us): We do outreach with videos & automation to get better results, we use 4 hours to get 5 interviews with potential customers. With hourly-based pricing, we would be punished for being efficient & building great processes and automation and we would only get 400€ for the same end result.

So that's the problem with hourly-based pricing.

How to get Talent Acquisition from hourly pricing to value-based pricing?

First, we need to understand what is valuable for our customers. In most cases it's the following things:

  1. Fill the urgent hiring needs
  2. Build Employer Branding to cut the cost of hire & get better people in the long run.
  3. Build Talent Pipelines for future hiring needs.
  4. Increase hiring maturity, build better TA processes, and get insights from the market --> All aiming to do TA more efficiently in the future.

So now let's try to get all of these out of the hourly pricing --> So whether we would use 5 or 10 hours to do these things each month, we would get the same amount of money --> This pushes us to be more efficient.

Part 1: Fill the urgent hiring needs

For urgent hiring needs, we could use the success-fee pricing, but it creates too big a risk for our business & some cash-flow issues. Therefore I would build the pricing to urgent hiring needs to be something like:

Base price based on the number of ongoing recruitments we are running to customers. E.g.:

  1. One recruitment 1500€ / month
  2. Two recruitment 2500€ / month
  3. Three recruitments 3250€ / month
  4. Four recruitments 4000€ / month
  5. Five recruitments 4500€ / month

+ a success fee of 1000€ every time we hire someone.

Part 2: Build Employer Branding

This is something we have solved already quite well, and this is easy to package, so having few different packages on Employer Branding. All the packages include planning & analyzing the results. Here are the actual packages:

Package 1:  

🚀  1 theme blog post or employee stories on the career site & blog

🚀 4 social media posts on personal SoMe profiles of founders / other key people.

🚀 4 social media posts on company channels

🚀 1 paid campaign of chosen content to increase visibility

Package 2:

🚀 2 theme blog posts or employee stories on the career site & blog

🚀 4 social media posts on personal SoMe profiles of founders / other key people.

🚀 12 social media posts to chosen channels

🚀 2 paid campaigns of chosen content to increase visibility and drive traffic to career site content

🚀8X short-form videos to TikTok & Instagram per month

Package 3:

🚀 4 theme blog posts or employee stories on the career site & blog

🚀 4 social media posts on personal SoMe profiles of founders / other key people.

🚀 16 social media posts to chosen channels

🚀 3 paid ads campaigns to increase visibility, drive traffic and generate conversion

🚀16X short-form videos to TikTok & Instagram per month

🚀 Monthly talent newsletter

🚀 Monthly audio-visual content 2x / month e.g. Podcast, IG-live, Webinars

🚀5X short-form videos from audio-visual content

Part 3: Build Talent Pipelines for future hiring Needs

Building Talent Pipelines for roles you need to hire a lot in the future makes sense. This is basically about nurturing candidates & building those relationships before hiring those people. This would be priced per segment e.g., talent pipeline building to salespeople or developers.

Pricing could be, e.g., 500€ or 1000€ per Talent Pipeline.

The question I've been asking is, what is included in that pricing? E.g., adding ten people each month to that talent pipeline.

Part 4: Strategic TA, including Increase in hiring maturity, building better TA processes, getting insights from the market, etc

Pricing should most likely be based on the customer size but eventually start from 750€ / month.

How all of this goes into action?

Okay, let's crunch some numbers with real-life examples.

So, first of all, when we talk about TA as a service, it would always include all of these things for our customers.

Let's take the example of a SaaS company that has 30 employees right now, and they are about to hire 10 new persons this year + 5 backfills = a total of 15 persons.

If they would use a traditional project-based business, they could estimate to use around 15 x 10 000€ for this = 150 000€.

So what would the pricing be for them with this monthly model?

Let's assume:

  1. They have average of 3 recruitment processes running all the time = 3250€ / month (+ 1000€ x 15 = 15 000€ in success-fees)
  2. They take the 2nd EB package with 3490€ / month
  3. They want to build talent pipelines for salespeople because they know that they are about to scale that side next year = 500€ / month.
  4. Strategy part: 750€ / month

So the total monthly cost would be 7990€ / month = 95 880€ / year + 15 000€ (success-fees) = 110 880€

When we divide that by 15 hires, we get to 7392€ per hire on average.

And as a result, the customer has both achieved their hiring goals for the year and built a great base for upcoming hiring with employer branding & talent pipelines.

Does this work?

So at least on paper, we could get from hourly pricing to at least somewhat value-based pricing.

But here comes the most interesting thing about the topic:

If we would use:

2000 hours during the year, our hourly price would be 55,44€

1000 hours during the year, our hourly price would be 110,88€

700 hours during the year, our hourly price would be 158,4€

So in this value-based model --> If we are more efficient --> Our hourly price goes up.

In the hourly-based model --> If we are more efficient / lazier --> Our hourly price stays the same.

And now the big bet with the model is:

Do we really think we can be efficient enough to get customers results?

If yes --> We should go with this model.

If not --> We should be selling hours.

Or is this all just too complicated, and let's stay in hourly-based pricing like service companies have done for a long-time? But that would be boring. I think it's way more interesting to try to renew the industry.

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