Building your Commission Scheme – 12 Questions for Recruitment Owners

When you’re growing your recruitment business beyond you and any other founders, one of the first areas you’ll need to sort is your commission scheme!

We’ve been involved in countless recruitment commission schemes over more than 20 years. More than that, we’ve analysed the established recruitment companies’ commission structures and we have built a number of effective schemes ourselves.

So to give you a head start, here’s our 12 key questions you need to ask yourself, if you want to construct the best commission for your company:

1. What is the Purpose of the Scheme? Before you sit down with an excel spreadsheet, the first question you should ask yourself is what outcome you really want from your commission scheme – is it aimed at rewarding and retaining big billers (£250k+) or aimed at steady eddies (c. £100-120k). Who you are building it for does change the model!
2. Will your Recruiters find it easy to calculate their money? The best schemes are the ones where your recruiters can see what they will earn! That’s motivating! I’m an advocate of providing a commission calculator, to motivate them for ‘one more deal’.
3. Does it handle Temp/Contract and Perm revenue differently? Your cost base for a contract recruiter is vastly higher and riskier than your perm biller. However, your contract recruiter can take longer to build up and can bill more in the long term. Different schemes for contract & perm motivate and reward differently!
4. What’s the best commission length? Schemes can be based around monthly billings, quarterly billings and annual billings. It’s pretty standard to do a mix of two or even all three. Monthly commission gives your recruiter a ‘hit’ of money, whilst quarterly and annual promote sustained, consistent billing, which is better for your company.
5. Is it the same commission scheme for team members at all levels or do you have different commission levels for different experience levels? If it’s the same scheme for all recruiters, the difference in earnings between a Trainee and a Senior would be basic salary and benefits, plus additional commission if they bill more. Whichever route, you MUST ensure the scheme is consistent with all team members at the same level, otherwise you risk inhouse disputes!
6. Threshold or not? This is an emotive subject for many recruiters. Many owners feel billings should start after some costs are covered, while as recruiters love knowing they get commission on everything they have billed. I’ve changed my personal view on this, – for many years, I was a Threshold fan, but now I reckon 5% on all commission doesn’t cost much to an owner, but it’s motivating for a recruiter!
7. When are you calculating revenue? Are you calculating commission when the invoice / start date is or when the payment is received in your bank account? Recruiters prefer first, owners prefer second.
8. When should you pay commission? When your company is paid on the invoice or a set period after the invoice. Recruiters love the second, owners love the first.
9. When to pay other bonuses? If you pay Quarterly and Annual commission or bonuses, when would you pay these, as it’s much harder to manage the ‘pay when paid’ model.
10. How would you handle credits? As much as no one wants them, they happen. Take them back to the month the invoice was raised, raise them in the month they land in or a mix of both, dependent on circumstances. Our advice is to never ask for Recruiters to pay you back, wait until they have accrued more of their own commission!
11. Would you still wait for Temp Margin to be paid before you pay the commission on it? In which case it gets quite fiddly as the business grows. We ran it where temp margin was paid 2 months after month of invoice.
12. Should your commission scheme be uncapped? YES, you may be paying super-big billers a lot of money, but you will be making a lot of profit on them as well! And that is the aim of the game!

There’s a lot to think of and once you have launched it to your recruiters, it’s bloody hard to change it later, because of Employment Law. So make sure it ties in with the kind of company you want to be and get it right first time!

We’ve modelled and stress tested many schemes to expose holes and show how they perform, so if you want any help with designing or testing your commission scheme, then we’d love to help you.

Pete Marston