Direct Hire Fee Engine

Why this comes up

A direct-hire fee is usually quoted as a percentage of candidate salary, but that percentage should come from somewhere, either a rate you've decided to charge, or a target margin you're solving backward from once you know your delivery cost. This engine handles both directions with the same underlying math.

How we calculated this

Forward: Placement Fee = Candidate Salary x Fee Rate
Reverse: Required Fee Revenue = Direct Delivery Cost / (1 - Target Contribution Margin)
Required Fee Rate = Required Fee Revenue / Candidate Salary

Worked example, forward mode: $80,000 candidate salary, 20% fee rate.

Placement Fee = 80,000 x 0.20 = $16,000

Worked example, reverse mode, same salary: $4,000 direct delivery cost, 60% target contribution margin.

Required Fee Revenue = 4,000 / (1 - 0.60) = $10,000
Required Fee Rate = 10,000 / 80,000 = 12.5%

What this means

• Forward mode is what you use when you already know or have decided on a fee rate. Reverse mode is what you use when you know your delivery cost and want to know the minimum rate that clears a target margin.
• The two modes can disagree, in the example, a 20% forward rate produces $16,000, well above the $10,000 reverse-solved minimum for a 60% margin, meaning there's real room in this fee before it stops clearing that target.
• Reverse-solving tells you the rate needed on paper; it doesn't confirm the market or your contracts will actually bear it, check that separately.

Common mistakes

• Using an industry-standard fee percentage without checking whether it actually clears your target margin given your real delivery cost.
• Treating the reverse-solved rate as automatically achievable, without confirming it against competitive market rates or existing client agreements.
• Forgetting delivery cost varies by role difficulty; a single flat fee rate can be generous on an easy-to-fill role and inadequate on a hard one.

Frequently asked questions

Which mode should I use?

Forward if you already know the rate you're quoting and want to see the resulting fee. Reverse if you know your delivery cost and want to find the minimum rate that clears a target margin.

What counts as "direct delivery cost"?

Recruiter time, sourcing cost, and any other direct cost of delivering this specific placement, not including the expected cost of a replacement guarantee, which is handled separately.

Does this account for the replacement guarantee?

No, run Replacement Guarantee Economics separately and include its expected cost in your full profitability check.

Limitations

Reverse-solving only tells you the rate needed to hit a target margin on paper; it doesn't check whether that rate is competitive or contractually allowed. Confirm it against your actual client agreements.

Next decision

• Check whether this fee is actually profitable after delivery cost
• Compare this against your contract/temp service model

Learn more

Temp, Temp-to-Hire, and Direct-Hire Economics — three placement models with genuinely different economics.