Are New HR Consultancies Undercutting Fees? Seeking Advice on Setting Fair Rates

Since last year or so, what we (me and other recruitment consultants) have observed is that many new recruitment consultancies have emerged in almost every city of India. Being new HR consultancies, they are charging very low or fixed recruitment fees from companies. Consequently, many established consultancies are encountering challenges in acquiring new business or retaining old clients as companies and HR managers are negotiating consulting fees and even pushing for rates lower than 8.33%, which I personally believe is unhealthy. Can't we (HR consultancies) establish an association like other businesses have, where minimum recruitment charges are fixed for all? Dear seniors, please guide us on this matter.

Dear Savlihr, competition in the recruitment field has always been present; it did not start recently. Every business has inherent advantages and disadvantages. Let's consider this from the buyer's perspective. If I were to hire recruitment services from a recruitment company, according to the Kraljic Matrix, where would I place these services? Certainly in the "Leverage" or "Routine (non-critical)" categories.

Transforming Recruitment Services

Your main challenge would be how to transform your services to fit into the "Strategic" or "Bottleneck" categories. It is nearly impossible to enter the "Strategic" category. Therefore, while delivering your services, you must establish a business model that offers niche services with less competition.

I encountered a similar issue in the training field. Soft skills training falls under the "Routine" and "Leverage" categories. While you may have higher volume, the earnings per day are lower. However, my expertise in "Purchase Management" helped me provide training services that fall into the "Strategic" or "Bottleneck" categories. Now, when I provide training services, I can command higher prices without being swayed by competition.

Regards,
Dinesh V Divekar

Beware of false knowledge; it is more dangerous than ignorance.

Dear Dineshji,

Thank you for your valuable insights and guidance. I concur with your viewpoint that to excel in a competitive environment, one must specialize in offering niche services or unique products. However, as a generalist HR consultancy providing recruitment services primarily to Engineering, Manufacturing, and IT companies, we are not inclined to reduce our consultancy fees, as we consistently deliver high-quality resumes (our success rate is at least 4 candidates shortlisted out of 5 resumes sent to our clients).

Could you please advise us on how we can navigate this intense competition while maintaining our current pricing structure?

Please guide us...

Regards

Competition in Various HR Fields

To take what DVD mentioned further, recruitment, training, or generalist HR consultancy aren't the only fields where competition exists. Competition exists in every field you can name—globally too. It's for the new entrant to figure out how he/she/they can add/project USP(s) to handle the already-established players and for the established players to figure out how to tackle the new entrants. If you think of it, just as you—an established player—have issues with new entrants, you can bet your last penny that they too would have similar issues with established players from their perspective, except that they would be different from yours.

A Different Perspective on Competition

Let's look at this aspect/situation from another angle—and I am taking the example of just one sector/industry. I am absolutely sure that we wouldn't be interacting this way over the internet hadn't it been for the competition that entered (some say belatedly) into the Indian Industrial/Technology scenario in the early '90s. Old-timers in this forum would definitely be able to place what I am saying here—thanks to the DoT (now BSNL) telecom infrastructure until then, one had to wait for at least half an hour (in many cases for a couple of hours too) just to make an STD call—which all of us take for granted now. And at a much higher cost too.

A fairly recent example could be the state of affairs of mobile telephony in India. Do you recollect the average cost/call when mobile telephony was introduced in India around 2000? Definitely not 1-2p/sec. Hope you get what I mean.

Survival of the Fittest

Frankly, it's wise to always remember the old doctrine by Charles Darwin: "Survival of the Fittest"—'fittest' as defined not by you or me, but by the arena/sphere in which we operate. The sooner one finds ways to handle competition the better—whether it's established players or new entrants. And here I am not including unethical competition, even though it's pretty common all over.

All the best.

Regards,
TS

I think you should ask for the right price if you provide quality services or products. Make a rule that you won't let your margins down substantially just to beat your competitors, as this may put your business at risk in the long term.

If multiple products of the same quality are offered to a customer, they will choose the one with better after-sale service. Also, one should be able to justify their product or service price. If multiple companies provide the same services at different prices, obviously buyers would be interested to know why there is a price difference. If one could clearly justify what value the buyer can get for the higher price they are paying, then you would be able to connect with good clients for the long term. Who knows, even though they are paying higher prices, they might be getting more value. On the other hand, your competitors will struggle in a lower-margin market.

Focus on Your Business Strategy

Shift your focus from competitors to your own business. Do a SWOT analysis, take the opinion of your clients in the form of positive criticism or their requirements, and build uniqueness in your service by developing good post-sale service, lowering assignment execution time, or improving anything that you find after collecting necessary inputs to add value to your services and to justify your prices – to justify what value the client is getting at your price.

After all, business is about how quickly you can adapt your services and products to the changing market. Those who adapt to change will survive, while those who can't will need to find new products, services, or new markets to survive.

Regards,
Sarang
Forscher Consultancy

Very well explained. There is a requirement to always be on your toes to beat the competition, with a focus on quality and innovation.